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ACCOUNTS  AND 
ACCOUNTING  PRACTICE 


ALBERT   G.    BELDING 

FIRST   ASSISTANT   UIGU  SCHOOL  OF  COMMKRCE,    NEW   YORK 

FORMERLY   DEAN  OF  DEPARTMENT  OF  FOREIGN  COMMERCE 

HIGHER  COMMERCIAL  SCHOOL 

KOBE,   JAPAN 


»      • 


•.  •.    • 


.  :  ••  •  • 


AMERICAN   BOOK  COMPANY 

NEW  YORK  CINCINNATI  CHICAGO 


5b 


Copyright,  1915.  bv 
ALBERT  c;.    BELDING 


Copyright,  iqis,  in  Great  Britain 


delding's  accts.  and  accig.  prac. 
w.  p.   I 


i'i<i-:face 

The  aurlior  ot  this  hook  has  accepted  the  distinction  made  by  recent 
writers  between  bookkeeping  and  accounting  and  has  adopted  the  lattei 
title,  because  the  discussions  and  exercises  that  follow  have  to  do  chieHv 
with  the  constructit)n,  organization,  and  interpretation  of  accounts. 

One  writer  says  that  "  bookkeeping  is  carpentry  ;  accounting,  architec- 
ture. "  If  this  distinction  holds,  bookkeeping  becomes  niereh'  an  applica- 
tion of  arithmetic  and  penmanship;  its  aim  as  a  subject  of  study,  the 
acquisition  of  manual  expertness  m  marshaling  statistics.  Ihe  stud\'  of 
any  subject  b\'  the  application  of  prescribed  formula  must  dull  the  obser- 
vation and  deaden  initiative,  thus  making  distinct  and  logical  sequences 
decline  into  a  routine  obedience  to  rule-of-rhumb  dogmas.  W  hik-  riu- 
student  of  bookkeeping,  therefore,  as  bookkeeping  has  been  defined,  may 
carry  away  with  him  a  quantity  of  not  altogether  useless  preconceptions, 
the  critical  faculty,  which  alone  can  aid  him  in  anal\'zing  the  entirely' 
practical  and  unceremonious  phenomena  of  business,  is  not  brought  into 
prominence. 

I  he  clerical  aspects  of  all  written  work  are,  of  course,  important  ;  but 
a  larger  aim  of  this  subject  should  be  to  teach  the  principles  of  business 
organization  and  procedure  as  they  arc  prescribed  in  the  experiences  of 
business  men.  Business  organization  results  from  the  observation  and 
interpretation  of  business  facts  and  events.  W  hen  a  business  man  appraises 
a  fact  of  his  business,  he  at  the  same  time  appraises  the  services  of 
the  one  responsible  for  that  fact.  Accounts  record  values,  bur  values 
merel\'  reflect  the  judgments  of  men.  Each  account,  therefore,  has  its 
protot\pe  in  some  activity  of  the  business.  The  accounting  organization 
thus  s\nibolrzes  the  business  organization;  each  involvts  all  the  principles 
of  the  other. 

It  is  not  contended  that  a  study  of  the  principles  of  business  organi- 
zation will  make  a  full-fledged  business  man,  an\  more  than  a  study  of 
legal  "ca.ses  "  will  makr  a  full-fledged  Iaw\er.  Hiir  the  aspirant  for  suc- 
cess in  the  commercial  worKl  who  is  fortified  with  a  knowledge  of  j-tiin- 
ciples  and  precedents  is  much  better  able  to  interpret  his  environment 
than  one  who  enters  the  field  with  no  such  equipment. 


31^155 


^  PREFACE 

In  the  stucl\-  of  accounts  here  presented,  both  the  account  method  and 
the  transaction  method  have  been  employed.  An  account  has  its  source 
and  function  in  tin-  events  ot  which  ir  is  a  record  ;  hut  all  events  have- 
a  rehitive  signiHcance,  so  an  account  must  be  interpreted  in  its  rehition 
to  other  accounts.  The  account  should,  accordingly,  be  viewed  from 
different  angles. 

1  he  law  of  debit  and  credit  is  presented  as  expressing  and  governing 
the  relation  between  a  thing  owned  and  its  owner.  And  it  is  so  presented 
because  the  author  is  aware  of  no  other  law  by  which  to  explain  the 
equilibrium  of  a  double  entry. 

An  attempt  has  been  made  from  the  beginning  to  adhere  to  established 
principles  of  accounting.  Accounting  ramifications  cannot,  of  course,  be 
full\-  illustrated  in  elementary  exercises.  Students,  however,  may  be  very 
thoroughly  grounded  in  the  comparatively  few  principles  that  underlie 
all  accounting  expedients,  and  may  be  taught  to  clearly  understand  some 
adaptation  of  those  principles  to  practical  considerations.  Ihe  rest  must 
be  left  to  the  school  of  experience. 


CONTEXTS 


TOPICS 


Intkoduction   .... 

The  Economic  B.^sis  of  Accounting 

A  Business  An.alyzed 

Construction  of  Accounts 

interi'ketation  of  accounts 

Classiimcation  OF  Accounts 

Content  and  Form  of  the  Record 

Posting     .... 

The  Trial  Balance 

Labor-saving  Books 

Trading  Accounts  . 

Closing  the  Ledger 

Credit  Instru.ments 

Single  Entry  Bookkeki'Ing 

Merchandise  Discounts 

State-ments 

CoLU.\iNAR  Cash  Books   . 

Au.xiLiARY  Ledgers 

Controlling  Accounts  . 

Business  Practice  and  Procedure 

Index . 


PACK 
7 

9 
II 

21 

28 

33 
41 
50 
54 
58 

9> 

96 

106 

149 

158 

174 
180 
187 
187 
191 
222 


E.XLRCISES 

Exercise  i.     Illustrative  Tr.\nsactions 
Exercise  2.     Illustrative  Transactions    . 
Exercise  3.     Illustrative  Transactions    . 
Exercise  4.    Wholesale  Shoe  Business 
Exercise  5.     Wholesale  Shoe  Business  {Continued) 
Exercise  6.    Wholesale  Shoe  Business  {Continued) 
Exercise  7.    Wholesale  Shoe  Businf.ss  {Continued) 
Exercise  8.     Wholf-sale  Shoe  Business  {Continued) 

Exercise  in  Mental  Postinc; 

Exercise  9.     Wholesale  Shoe  Business  {Concluded) 
Exercise  10.    Wholf.sale  Shoe  Business,  Sale  ok    . 

5 


35 

38 

42 
49 
57 
59 
63 
67 
74 
75 
77 


CUNTIMS 


KXERCISE  II.  MoKfiAN'S  BUSINESS.  LlQirOATED  . 
KXERCISE  12.  Mf)l«iAN's  HlSINKSS.  HoOKS  CLOSED 
E.XEKCISE    13.       ReTAII,   CoAL    liUSI.NESS     .... 

ExKKCisEs,  Practice 

Exercise  14.     Ii.listrative  Tra.n'sactions  . 
Exercises,  Short,  Invoi.vinc  Merchandise  Discount 
Exercise  15.     Hardware  and  House  Furnishlso  Business 

Exercise  16     Orocery  Hisiness 

Exercise  17.     Wiioi.esai.e  Drv  Goods  Business 

ExERCisics,  Practice 

Exercise  18.     Retail  Shoe  Businos    .... 
Exercise  19.     Single  Entry  liooKKKKiiNc; 
Exercise  20.     Masons'  Suimm.ies  and  Blilkini.  Maim<i,\ 
Exercise  21.     Furniture  Business        .... 

EXERUSE   IN    PrEI'ARING    STATEMENTS        .... 

Exercise  22.     Colu.mnar  Cash  Books  .... 
Exercise  23.     Wholesale  Carpet  Business 
Exercise  24.     Accounting  Prohle.ms    .... 


PACB 

79 

83 

92 

97 

109 

126 

127 

129 

»3> 

•3^' 
142 
149 

'53 
161 

176 

180 

201 

219 


ACCOUNTS   AND    ACCOUNTING    PRACTICE 


INTRODUCTION 

Development  of  Subject 

The  stiidv  of  accx)UMts  is  begun  h\  persons  of  widely  vaiyinu;  aj^es 
and  capacities,  and  teachers  hold  different  opinions  of  its  value  and  pur- 
pose. This  book  is  intended,  accordingly,  to  give  the  widest  possible 
latitude  in  developing  the  subject  treated.  Those  who  find  that  the  sub- 
ject matter  of  the  opening  pages  is  beyond  the  grasp  of  beginning  students 
are  asked  to  turn  to  page  21,  The  Construction  of  Accounts^  and  proceed 
from  that  point.  Those  who  prefer  to  begin  the  study  by  writing  and 
posting  entries  may  turn  at  once  to  page  41  where  very  simple  material  in 
narrati\e  form,  and  detailed  instructions,  are  given  for  that  purpose. 

Business  Papers 

At  just  what  point  business  papers  should  be  introduced  is  also  de- 
batable. Interpretation  of  busuiess  forms  is,  ot  course,  essential  to  a 
working  knowledge  of  the  subject.  Standardized  business  documents, 
however,  have  been  developed  through  centuries  of  legal  «ind  business 
procedure,  and  they  are  too  technical  to  be  used  at  the  beginning  as  objects 
of  studv.  It  is  enough  for  the  beginning  student  to  translate  language 
within  his  own  comprehension  into  accounting  terms  and  concepts.  The 
double  translation  would  have  to  proceed  from  the  unknown  through  the 
known  to  the  unknown.  In  the  beginning  exercises  of  this  book,  there- 
fore, the  facts  nnoKed  aie  fulK    and  simply  stated. 

Red  Ink 

The  use  of  red  ink.  for  the  purpose  of  closing  and  ruling  accounts, 
is  neither  illustrated  nor  rec|uired  in  this  book,  in  recognition  of  the  now 
common  and  growing  practice  of  bookkeepers  and  accountants,  especially 
those  connected  with  large  concerns,  to  use  black  ink  tor  all  account- 
keeping  purposes.  1  he  reason  for  this  practice  is  obvious  :  it  saves  time 
by  reducing  the  number  of  tools  handled  and  the  kinds  ot  material  used, 
and  is  therefore  a  practical  application  of  the  principles  of  efficiency. 
Teachers  who  prefer  the  other  method  may,  however,  readily  adapt  the 
book  to  meet  their  views  bv  instructing  the  students  to  use  red  ink  for 
making  original  cross  entries  and  for  all  rulings. 

7 


8  ACCOUNTS    AND    ALCOUNTING    PRACTICK 

Methods 

1  he  author  lias  conihincd  the  best  features  of  both  the  account  method 
and  the  transaction  method  ot  development.  Our  problem  involves  the 
studs  <tf  an  accounting];  structure  and  its  constituent  parts.  We  ma\ 
first  exhibit  that  structure  as  a  working  orfi,anism  and  trace  the  source  and 
function  of  its  various  parts,  or  we  may  befiin  by  interpreting  and  assem- 
bling the  parts  that  form  the  structure.  Both  points  of  observation  are 
necessarv  to  a  complete  understandmg  of  the  subject. 

Basic  Principles 

\\  hether  a  studv  of  fundamental  laws  should  precede,  accompany,  or 
follow  the  mechanical  routme  of  bookkeeping  procedure  ma\  be  open  to 
discussion  ;  but  there  can  liardK  be  two  opmions  as  to  the  \alue  of  the 
basic  principles  underlying  that  jnocedure.  \  he  responsible  head  of  a 
business  is  concerned  with  the  higher  sides  of  its  activities,  as  distinct  from 
the  mechanical  routine  work  of  his  subordinates  ;  but  managers  and  pro- 
prietors are  recruited  from  the  ranks  of  subordinates  whose  spheres  of 
observation  extend  beyond  the  particular  service  to  which  they  are  as- 
signed. The  bookkeeper  who  sees  in  his  work  nothing  more  than  writing 
entries,  posting,  and  taking  a  trial  balance  may  scarcely  hope  to  rise  to  a 
higher  position,  and  his  success  as  a  mere  bookkeeper  will  be  very  small. 
A  preparation  for  business  that  does  not  reach  beyond  the  re(]uirements 
of  an  office  assistant's  position  is,  to  say  the  least,  superficial  and  inadequate. 
Emphasis  should,  therefore,  be  put,  not  alone  upon  the  mechanical  details 
of  accounting  processes,  but  upon  the  capacity  to  bring  trained  intellects 
to  the  solution  of  practical  problems. 


THE   ECONOMIC   BASIS   OF   ACCOUNTING 

Assets  and  Capital 

The  fact  rlicit  persons  have  the  right  to  own  and  transfer  external 
tilings  and  do  appropriate  sucli  thuigs  to  their  jHisonal  use  and  service, 
forms  tlie  groundwork  ot  accounting  practice.  Ahiiost  every  one  owns 
something,  and  nearly  everything  in  the  world  about  us  is  owned  by  some 
one.  I  hings  owned  serve  the  owner's  purpose  as  a  means  of  satisfying 
soiiK'  of  his  wants.  Ihat  which  satisfies  a  want  or  renders  a  service  is  said 
to  have  "  value,"  and  \  aluahle  things  may  be  exchanged  for  other  things. 
Persons  engaged  in  exchanging  things  of  value  are  said  to  be  "  in  business." 
Persons  in  business  become  the  owners  of  many  different  things. 
1  hese  things  are  often  not  in  possession  of  the  owner;  they  are  fre(]uentl\' 
moved  from  place  to  place,  and  they  often  become  owned  and  unowned  bv 
many  different  persons  in  a  short  space  of  time.  Moreover,  one  person's 
ownership  of  a  thing  is  often  not  complete;  that  is,  different  persons  have 
a  money  interest  in  the  same  thing  or  group  of  things  at  the  same  time. 
These  considerations  make  it  necessary  to  keep  some  kind  of  a  business 
record  to  show  (i)  what  things  are  owned  and  (2)  who  are  the  owners. 
Things  owned  are  called  "assets";  the  owner's  right  to  such  things, 
capital. 

Profit 

It  should  be  apparent  from  the  foregoing  that  ownership  presents  two 
related  concepts,  or  notions  ;  that  of  the  thing  owned  and  that  of  the  owner's 
property  right  in  the  thing.  When  things  owned  increase  in  value,  the 
increase  becomes  owned,  and  the  owner's  worth  increases  accordinglv. 
An  increase  of  an  owner's  worth  is  called  "  profit."  Capital  and  profit 
are,  accordingly,  the  same  kind  of  thing;  they  are  the  worth  of  an  owner's 
right  to  something.  If  an  owner's  worth  has  increased,  former  capital 
plus  profit  equal  present  capital. 

Expenses  and  Losses 

Since  only  valuable  things  are  owned,  a  thing  Inconus  unowned  when 
it  loses  its  value,  because  the  owner's  right  to  it  loses  its  worth.  Ail 
things  m  which  a  business  man  deals,  or  \Mtli  which  Ins  business  is  carried 
on,  are  expected  to  \ield  an  adetiuatc  iiturn,  either  in  nionev  or  some 
other  species  of  value.  Some  things  are  sold,  others  are  used  or  con- 
sumed in  running  the  business.       1  In-  \;ilue  of  am    of  these   things   may 

9 


lO  ACCOUNTS    AND     \((()t'\-TIV<;     PR AfTirr, 

become  wholly  or  partly  lost  from  the  decay,  destruction,  or  depreciation 
of  the  thing  owned,  or  as  the  result  of  a  tailing  market.  Another  reason, 
therefore,  why  records  art-  kept  is  to  show  how  much  thmgs  cost  and  how 
much  they  yield  or  produce;  and  to  show  the  cost  of  things  that,  in  one 
way  and  another,  lose  their  value.  1  he  things  that  are  consumed  by 
use,  such  as  fuel,  light,  postage,  stationery,  etc.,  are  called  "  expenses." 
Things  that  lose  their  vahu-  to  tlu'  owner  witlniur  giving  anything  in  re- 
turn arc  called   "  losses." 

Scope  of  the  Record 

If  we  are  to  record  the  rights  ot  persons  in  and  to  things  owned  as 
well  as  to  account  for  the  objects  to  which  such  ownership  relates,  a  com- 
plete accounting  record  should  show  (i)  who  owns,  or  owns  an  interest 
ill,  the  things  employed  in  a  particular  business  undertaking;  (2)  the 
events  by  which  property  rights  involved  are  acquired  and  disposed  of; 
and  (3)  to  what  extent  the  value  of  the  things  underlying  those  property 
rights  becomes  increased  or  diminished.  A  complete  record,  accordingly, 
comprehends  three  things:  (i)  a  statement  of  ownership  at  the  beginning 
of  a  business  period,  which  is  called  an  "  opening  entry  ";  (2)  a  record  of 
events  during  a  period  of  time,  called  the  "  journal  "  ;  and  (3)  a  statement 
of  ownership  at  the  close  of  such  period,  calKd  the  "  balance  sheet." 


A   BUSINESS   ANALYZED 

I.  We  shall  now  analy/c  the  tacts  and  events  of  a  small  husiness  under- 
taking to  show  (i)  the  relation  that  exists  hetween  things  owned  and  their 
owners,  and  (2)  how  that  relationshij-)  is  aHeetcd  h\'  inereases  and  decreases 
in  value  of  the  things  owneil. 


Illustrative  Transactions 

Nov.  I,  19 —  (current  year),  John  Lord  is  the  owner  of  ^400  m  cash. 
Nov.  3  he  buys  of  Joseph  McCall  200  bbl.  apples  («  ^^2.75,  paying  cash  )?300 
and  giving  his  oral  promise  to  pay  the  balance  of  )5250  in  20  days.  At  the 
same  time  he  hires  the  use  of  a  storeroom  until  Dec.  i,  and  pays  for  the  same 
in  cash  ^^35.  During  the  month  of  November  he  makes  the  following 
sales:  Nov.  7,  H.  A.  Miller  for  cash,  10  bbl.  Qi  ^^3.75;  Nov.  12,  Carl 
Hutchins  on  terms  often  days'  credit,  25  bbl.  («  ^^3.75  ;  Nov.  20,  D.  D.  W'arne 
for  cash,  155  bbl.  (</  y>3.So;  Nov.  27,  E.  A.  Hough  for  cash,  5  bbl.  («  ^^2.50. 
Nov.  22  John  Lord  receives  of  Carl  Hutchins  ^93.75  in  full  settlement 
of  Hutchins'  debt.  Nov.  23  Joseph  McCall  is  paid  in  full  for  the  purchase 
of  Nov.  3.  Nov.  30  John  Lord  pays  other  incidental  e.xpenses  incurred 
during  the  month  ^58.50. 

A  statement  of  ownership  at  the  beginning  of  this  business  undertak- 
ing would  appear  as  follows  : 


^a^ 


No\'KMBER     I,     IQ  — 


Cash 

John  Lord,  Capital 
Investment 


400 


400 


Ihis  is  a  record  of  the  fact  that  John  Lord  is  the  owner,  Nov.  i,  19 — , 
of  i^400.  Ihe  record  of  a  fact  or  of  an  event  is  called  an  "  entry  "  ;  and  since 
the  fact  of  ownership  involves  two  things  —  the  thing  owned  and  the 
owner's  property  right  —  the  entry  has  two  parts,  or  items.  And  since 
one  or  more  persons  mav  own  many  different  things,  such  as  money,  goods, 
land,  buildings,  etc.,  it  is  necessary  to  have  a  class  name  for  the  things 
owned.  1  his  name,  we  have  already  learned,  is  assets,  or  debtors.  I'or 
the  reason  that  the  propertv  rights  o\'  many  individuals  may  attach  to  one 
thing  or  group  of  things,  it  is  necessary  to  have  a  class  name  for  owners, 
and  they  are  called  "creditors."  Lhe  rights  of  the  legal  owner — the 
one  in  whom  the  title  vests  —  and  the  rights  ol  those  to  whom  such  owner 
is   in  dibt.  .iie  distinguished  by  the  terms  "capital"  and  "liabilities."      It 


1 1 


12 


ACCOUNTS    AND    ACCOUNTING    I'K  \<  TTrp 


is  hardly  necessary  to  say  that  the  pecuniary  rights  of  the  owner  or 
owners  equal  the  value  of  the  things  owned. 

2.  I  he  period  of  imu-  during  which  transactions  are  recorded  and  at 
rlu-  close  i>l  \\lmli  anorhei  ownership  statement  is  prepared,  \aries  in 
business,  hut  this  period  is  usually  one  year.  Kach  transaction,  however, 
produces  a  change  in  the  things  owned.  Money  is  exchanged  for  goods 
and  other  species  of  value,  and  goods  are  exchanged  for  nionev.  Bu\ing 
goods  for  cash  increases  the  supply  of  goods  and  correspondingh-  decreases 
the  supply  of  cash.  Selling  goods  for  cash  has  the  opposite  effect.  Each 
transaction,  therefore,  transfers  \  alue  from  one  pait  or  department  of  the 
business  to  antjther.  If  the  value  of  the  things  owned  increases,  either 
the  proprietor's  interest  or  that  of  some  one  outside  the  business  increases 
accordingly.  If  for  any  reason  the  value  of  the  things  owned  decreases, 
the  proprietor's  interest  or  that  of  some  one  outside  the  business  decreases 
accordingly. 

For  the  purpose  of  illustrating  the  effect  of  the  transactions  in  the  busi- 
ness of  John  Lord  upon  the  things  owned  and  upon  the  owners'  property 
rights,  the  following  statements,  beginning  with  the  statement  of  Lord's 
ownership  Nov',  i,  show  the  conditions  immediately  following  each  trans- 
action. The  accounting  procedure  by  which  this  outcome  is  accom- 
plished will  be  taken  up  later. 

{b)  November  i,  19 — 

Drl'.'nr  Creditor 


Cash 


400 


John  Lord 


400 


This  is  merely  a  repetition  of  illustration  a  in  a  different  form. 

Nov.  3.  Buy  of  Joseph  .McC'all  200  bbl.  apples  ^  $2.75.  Lord 
pays  cash  ^^300  and  gives  his  oral  inomise  to  pay  the  balance  of  ^^250  in 
20  days. 

Apples  valued  at  ^^550  have  become  owned  ;  cash  amounting  to  5^300 
has  been  disposed  of,  or  become  unowned,  and  Joseph  iMcCall  has  become 
a  part  owner  of  Lord's  assets  to  the  amount  of  ^^250.  An  ownership  state- 
ment following  this  transaction  would  stand  as  follows  : 


(0 


November  3 


Debtors 


Crfditors 


Cash 
Apples 


Joseph  McCall 
John  Loril 
Investment 


A    BUSINESS    ANALYZED 


13 


The  supply  of  casli  has  been  decreased  ^^300,  the  assets  have  been 
increased  (by  the  supply  of  apples)  ^^550,  or  a  net  increase  of  ^^250,  which  is 
the  amount  of  McCall's  interest  in  the  thnigs  owned. 

Nov.  3.  Hire  the  use  of  a  storeroom  until  Dec.  i  and  pay  the  rental 
in  cash  ^^35. 

That  which  has  here  become  owned  is  called  "  rent."  Cash  is  reduced 
,^^5,  and  our  exhibit  now  stands 

((/)  November  3 

Debtors 


\-ticunur} 

• 

Joseph  McCall 

-50 

John  Liird 

Investment 

400  , 
650  i 

1 

Cash 

.Apples 

Rent 


If  you  have  difficulty  in  understanding^  how  we  can  own  rent,  consider 
that  ownership  never  means  anythintj;  more  than  the  right  to  occupv  or 
use  and  transfer  the  thing  owned.  If  you  had  a  knife  and  were  not  allowed 
to  use,  sell,  or  exchange  it  for  something  else,  you  would  have  none  of  the 
rights  of  an  owner;  ownership  of  the  knife  would  mean  nothing  to  you. 
If  you  hired  the  use  of  a  knife  one  month,  you  would  thereby  acquire  a 
part  interest  in  the  knife.  For  accounting  purposes,  rent  is  a  part  or 
temporary  ownership  of  the  thing  rented. 

Nov.  7.  Sell  H.  A.  Miller  for  cash  10  bbl.  apples  @  $'!,-7S-  0"^ 
ownership  statement  now  stands 

{e)  November  7 

Debtors  Creditors 


Cash 

102 

SO 

Joseph   McCall 

250 

Apples 

522 

50 

John  Lord 

1 

Rent 

35 

1 

Investment 
I'roHt 

'      400 
lO 

660 

1 

660 

Compare  illustrations  d  and  t-.  1  lie  apple  supply  has  decreased 
$27.50  (10  bbl.  (S.  ^2.75).  The  cash  supply  has  increased  ,^37.50,  which  is 
a  net  increase  in  the  value  of  things  owned  of  ^10.  John  Lord  is  the  owner 
of  this  increase  which,  it  should  1h'  noted,  is  separated  from  the  original 
ownership,  or  investment,  and  is  called  "  profit." 

Nov.  12.  Sell  Carl  Hutchins  25  bbl.  apples  @  $3.75,  on  terms  of 
ten  days'  credit.  Receive  in  exchange  for  the  apples  Hutchins'  promise 
to  pay  ^593. 75  in  10  days.     Our  exhibit  now  stands 


14 


ALCUUNTS    AND    ACCOUNTLNG    PR.\CTICE 


(/) 


NoVEMUtK    12 


Di-hlors 


Creditors 


Cash 

I02 

50 

Joseph  McCall 

Apples 

453 

75 

John  Lord 

Rent 

35 

Invisrment 

Carl  Ilutchins 

93 

; 

I'rofit 

250 

400 

35 
68  c 


•  The  supply  of  apples  has  heeii  decreased  and  Carl  Hutchins  has 
received  the  value.  Hutchins  is  a  dehtor  here  in  practically  the  same 
sense  that  cash,  apples,  and  rent  are  debtors.  This  debt  of  ^93.75  is  a 
species  of  property  —  cash  in  10  days.  Pending  the  receipt  of  that  cash, 
we  employ  Hutchins'  name  as  a  debtor.  If  he  sends  us  a  check  in  pay- 
ment, we  shall  call  the  check  "cash  ";  but  we  shall  still  possess  noth- 
ing more  than  a  claim  upon  another's  assets.  I  he  difference  between 
"  Apples  "  and  "  Carl  Hutchins  "  as  debtors  is  that  one  is  a  possession, 
the  other  an  expectation  ;  but  to  the  business  man  all  values  are  expecta- 
tions —  expectations  of  pecuniary  service.  The  question  is :  What  will 
these  things  yield  in  money  .'  And  this  is  the  only  question  in  the  mind  ot 
the  business  man  with  reference  to  all  things  owned. 

Compare  illustrations  e  and/.  What  is  the  net  increase  in  the  value 
of  the  things  owned  r  Who  owns  this  increase  ?  \\  hat  is  an  increase  of  the 
proprietor's  ownership  called  .'  What  is  the  total  value  of  things  owned  : 
(The  fact  that  rent  has  decreased  in  value,  owing  to  the  expiration  of  a 
part  of  the  time  for  which  the  storeroom  was  rented,  may  be  disregarded 
at  present.)  What  name  is  given  to  things  owned  r  What  is  the  amount 
of  .McCall's  interest  in  the  things  owned  .'  How  much  is  Lord's  interest  : 
Explain  the  difference  between  McCall's  interest  and  that  ot  Lord. 

Nov.  20.      Sell   D.  D.  Warne  for  cash    155   bbl.   apples  («    ^^3.50.     The 
business  involved  in  relation  to  those  who  have  claims  upon  it  now  stands 


(g) 


November  20 


Dr' 


Cash 

Apples 

Rent 

Carl  Hutchins 


645 

27 

50,; 

35 

93 

75 

801 

2!;  i 

Joseph  McCall 
John  Lord 

Investm<  nt 

Profit 


Compare  the  value  of  things  owned  Nov.   12  (illusrr.ition  /)  with  the 
value  of  the  things  owned  Nov.  20  (illustration  i:).      \\  hat  became  owned 


A     liUSINESS    ANALYZED 


IS 


ill  this  transaction  :  \\  hat  became  unowned  ?  W  hat  has  increased  ? 
Decreased  :  What  is  the  net  increase  in  the  value  of  thinj^s  owned  ?  Who 
owns  the  thinns  Hsted  as  debtors?  What  was  Lord's  interest  Nov.  12? 
Wliat  is  his  interest  now?  How  much  has  l^ord's  interest  increased? 
What  was  the  cost  price  of  the  apples  ?  Ihe  seliiuL!;  price  ?  What  profit 
lesulted  from  the  sale  of  155  bbl.  apples  ?      Define  debtor  and  creditor. 

Nov.  22.  Receive  from  Carl  Hutchms  ^()}.7^,  in  accordance  wirh  the 
terms  of  the  sale  of  Nov.  12.  Ilutchms'  name  is  now  dropjud  from  ihe  list 
of  debtors.     Cash  receives  the  value  given  by  Hutchins,  and  we  have 


Uo 


November  22 


Debtors 


Cash 

738 

75 

Applts 

27 

50 

Rrnt 

3  5 

801 

25 

Joseph  McCall 
John  Lord 

Invtstmtnr 

ProHt 


Did  this  transaction  of  Nov.  22  increase  the  value  of  thin<;s  owned  ? 
What  class  of  transactions  does  produce  such  an  increase  ?  LJnder  what 
circumstances  would  a  sale  decrease  the  value  of  things  owned  ?  What  is 
the  source  of  profit  ? 

Nov.  23.      Pay  our  obligation  to  Joseph  McCall,  ^^250,  in  accordance 
with   the   terms  of  the  transaction  of  Nov.  3.     Cash   is  decreased  by  the 
amount    of   the    payment.      McCall's    name    is    dropped    from    the    list    of 
creditors,  and  we  have 
(i^  November  z} 

Debtors  Creditors 


Cash 

488  '  75  ' 

Jolin  Lord 

Applf.s 

27    50 

hi\  tstinrnr 

400 

Rent 

35 

Lrotit 

'5' 

25. 

551  •  25 1 

i     551 

25 

Joseph  McCall  has  taken  possession  of  his  interest  in  the  things  owned, 
rherebv  reducing  our  value  token  ^^250,  with  a  corresponding  reduction  in 
McCall's  pecuniary  interest.  It  is  thus  seen  that  personal  items,  other 
than  those  of  the  proprietor,  appear  in  the  record  only  temporarily.  1  hey 
call  for  the  receipt  or  payment  of  money,  and  operate  to  increase  or  reduce 
the  cash  item  when  payment  is  received  or  made. 

I  he  sales  of  Nov.  7,  12,  and  20  resulted  in  an  increase  in  the  value 
of  things  owned,  with  a  corresponding  increase  in  the  proprietor's  worth. 


i6 


ACCOUNTS    AND    ACCOUNTING    PRACTICE 


We  will  now  show  how  the  value  of  things  owned  is  decreased  and  how  the 
owner's  worth  is  decreased  accordingly. 

Nov  27.  Sell  K.  A.  Hough  tor  cash  5  bbl.  ;i|i|iles(fl  J?2.50.  Our  cash 
tuiul  lucoiiKs  increased  S12.50,  our  apple  supply  decreased  ^^13.75  (5  hhl.  (« 
^^2.75),  or  a  net  decrease,  hoth  of  rhings  owned  and  of"  owneishiji,  of  ,*^I.25, 
thus  : 

(  'A  NnvrMinrR  27 

Dfblors  Crfditors 


Cash 
A  |i  p  I  cs 
Rent 


501 

^5 

I.^ 

7> 

^    - 

1 

II 

;;o 

lotiii   Lunl 

In\  I stimnr 

I'rxtit 


400 
I  50 


Compare  illustrations  /  and  j.  By  selling  apples  that  cost  ^13.75 
for  5^12.50,  Lord  has  suffered  a  loss  of  ^^1.25,  which  reduces  profit  by  that 
amount. 

Nov.  30.  Pay  ^58.50  for  various  things  that  have  been  purchased 
during  the  month  —  the  services  of  workmen  and  teams,  postage,  tele- 
phone messages,  and  the  like  —  things  that  have  no  tangible  e.xistence,  but 
ne\'errheless  represent  \alue  received  and,  with  other  value  recened,  are 
included  among  the  debtor  items,  thus  : 


ik) 


November  30 


Debtors 


Crrditnrs 


Cash 

442 

75 

John  Lord 

Ajiples 

13 

751 

Investment 

400 

Kent 

35 

1 

1          I^rofit 

150 

Expense 

58 

50  i 

550 

: 

550 

« 

i 

This  transaction  effected  a  transfer  of  value  from  Cash  to  L.xpensc. 
An  article  of  wealth  has  value  only  because  of  its  uses  or  services;  and 
when  we  buy  service  of  any  kind,  we  are  buying  a  part  interest  in  the 
wealth  which  renders  that  service.  The  purpose  of  accountkeeping  is  to 
determine,  in  inonev  service,  the  outconu'  of  things  owiuil.  \ccordingIv, 
there  is  no  essential  difference  between  the  ser\  ices  we  call  "  Kxpense  " 
and  the  services  we  call  "  Apples  "  or  "  Cash." 

The  temporar\'  use  of  land  and  buililmgs,  calleil  "lent  '  ;  the  services 
of  workmen,  called  "wages,"  "labor,"  or  "salaries";  mail,  telephone, 
and  telegraph  service,  called  "communications";  heat,  light,  and  water 
service  are  things  owned,  have  value,  and  involve  property  rights. 


A    BUSINESS    ANALYZED 


17 


3.  We  have  now  reached  the  third  step  in  tlie  process  of  recording 
business  tacts  and  events;  namely,  the  statement  of  ownersliip  at  the  end 
(»f  the  period.  In  the  preceding  illustrations  we  have  shown  the  effect  of 
Inisiness  transactions,  ignoring  for  the  time  being  all  other  considerations. 
Not  only  do  transactions  produce  changes  in  the  things  owned,  but  changes 
result  from  the  use,  decay,  and  depreciation  of  such  things.  All  wealth  • 
is  perishable,  and  all  rights  to  the  services  of  wealth  e.xpire  in  time  and  lose 
their  value.  Many  of  the  things  with  which  a  business  is  carried  on,  such, 
for  illustration,  as  fuel  and  stationery,  are  consumed  in  one  use.  Other 
things,  such  as  tools,  ortice  furniture,  and  machinery,  are  worn  out  bv  re- 
located use.  Still  other  things,  such  as  telephone  service,  labor,  and  the 
like,  e.xist  not  as  possessions,  but  :is  flozvs  of  value.  If  we  would  know  to 
what  e.xtent  all  these  changes  have  affected  the  value  of  things  owned,  it  is 
necessary  to  make  a  physical  valuation  of  what  remains  at  the  end  of  the 
period.     This  physical  valuation  is  called  an  "  inventory." 

Let  us  assume  that  John  Lord's  inventory  Nov.  30  disclosed  only 
^442.75  in  cash.  Ihe  five  barrels  of  apples  unaccounted  for  have  been  culled 
out  from  time  to  time.  Some  have  rotted,  others  were  small  and  not  sal- 
.ible.  One  month  has  elapsed,  and  his  right  to  use  the  storeroom  has 
expired.  Nothing  of  value  is  discoverable  to  represent  the  expense  item 
of  ^58.50.  "  Rent,"  ''  Apples,"  and  "  Expense  "  at  this  time  represent 
value  absorbed  in  running  the  business.  Since  they  have  lost  their  value, 
the  owner's  right  to  them  has  lost  its  worth.  The}'  must  accordingly  be 
dropped  from  the  list  of  debtors  and  the  profit  item  reduced  b\'  the  same 
amount,  ^^107.25.     And  we  have  finally' 


(/) 


Debtor 


November  30 


Creditors 


Cash 

44- 
442 

75 

^1 

JdIiii    Liinl 

Investment 
Profit  (net) 

400 
42 

75 

442 

75 

1 

Summary 

The  business  man  keeps  books  to  show  (i)  who  owns,  or  owns  an  in- 
terest in,  rhe  things  of  his  business,  and  (2)  how  and  to  what  extent  the 
things  owned  increase  or  decrease  in  value.  We  have  learned  that  values 
received  are  placed  on  the  left  side  and  are  called  "  debtors  "  ;  that  such 
values  received  arc  (i)  transferred  to  some  one  outside  the  business;  (2) 
consumed  or  absorbed  in  the  process  of  marketing  the  stock  in  trade;  or 
(3)  remain  intact  as  assets,  or  things  owned,  at  the  end  of  the  period.     We 


l8  ACCOUNTS    A\D    ACCOUXTIN'G    PRACTICE 

have  also  learned  tliar  rhost-  wiio  own,  or  own  an  interest  in,  the  things  of 
the  husiness  are  entered  i»n  thi-  right  side  and  are  called  "creditors." 

Dkfinitions 

Value  is  the  potential  pecuniary  service  of  a  thing. 

AssHTS  are  things  owned.  I  In  bookkeeper  includes  as  assets  all  things 
upon  which  the  owner  nia\'  sufler  a  lt)ss. 

Profit  is  value  increase  —  increment  of  ownership  ;  that  which  a  thing 
yields  in  excess  of  its  cost. 

l.ossKS  arc  consumed  assets  -  the  cost  of  a  thing  in  excess  of  its  \ieKl, 
or  production. 

A  LI.^BILITV  IS  a  debt  owed  b\  us;  a  claim  upon,  or  a  jiarr  interest  in. 
our  assets. 

Capital  is  the  proprietor's  residuary  interest  in  the  assets  of  a  husi- 
ness; the  difference  between  assets  and  liabilities.  ibis  definition  of 
capital  IS  made  to  inclucK-  iinestment  and  profit.  "Capital"  is  emplo\ed 
in  accountkeeping,  however,  m  the  sense  of  an  investment,  as  distin- 
guished from  the  income  upon  the  investment. 

A  CRKDiroR  is  one  who  owns  a  right  to  the  uses  or  services  of  a  valu- 
able thing. 

A  DKBTOR  IS  the  thing  to  which  a  creditor's  right  attaches. 

Since  things  owned  are  expected  to  render  a  service  commensurate 
with  their  cost,  they  (or  their  custodians)  are  charged  with  their  cost,  or 
services  expected,  and  credited  with  the  services  they  render.  That  which 
costs  or  receives  value  is,  therefore,  a  debtor.  1  hat  which  earns  or  gives 
value  is  a  creditor. 

An  ACCOUNT  IS  a  record  b\'  which  a  thing  or  person  is  cliarged  with 
the  value  it  costs  or  recenes,  and  credited  with  the  value  it  yields  or 
gives. 

Problems 

1.  It  the  capital  of  a  business  is  ^loooo  and  its  assets  are  J^nqoo,  what 
are  its  liabilities  ? 

2.  lones  &:  Belcher  began  business  Oct.  i,  i<)  ,  with  an  investment 
of  )^ 1 7500.  Oct.  I,  the  following  year,  their  assets  are  ^^26400  and  their 
liabilities  ^53 50.     What  have  been  their  prortts  during  the  \ear  r 

3.  Nelson  &:  Noble  have  assets  valued  at  ^2X760.  Their  liabilities 
are  )^6S(;v  Their  gross  profit  since  the  books  were  last  closetl  is  ,^9305, 
and  their  expenses  ^^4256.      What  was  their  capital  at  the  last  closing  r 

4.  I'ollowing  are  the  assets  and  liabilities  of  the  business  of  Perkins 
&  Morgan,  Dec.  31,  19 — : 


A   nrsixr.ss  analvzkd  19 

ASSETS  I.IA15I1.1TIES 

Cash  ^5560.     Accounts  Payable-              ^'375- 

Accounts  Receivable  2450.     Mortgage  Pa\  able               4000. 

Stock  of  Merchandise  12000. 

1  lorses  &  Wagons  I-50. 

Office  Furniture  550. 

Jan.  1,  same  year,  their  capital  was  ^13500.  Show  wlutlu-i  rhc  busi- 
ness was  conducted  at  a  proHt  or  at  a  loss. 

5.  If  the  assets  of  a  business  amount  to  ^^23450  and  its  liabilirirs  are 
J^76;6,  what  is  its  capital  .' 

6.  The  capital,  profit,  and  liabilities  of  a  business  are  ^32650.  \\  hat 
are  its  assets  ^ 

7.  rhe  capital  of  a  business  Jan.  i,  19 — ,  is  ^^34500.  Its  losses  during 
the  followmg  \'ear  are  ^560.  Its  liabilities  Dec.  31,  same  \'ear,  are  ^58397, 
What  are  its  assets  Dec.  31  : 

8.  The  assets  of  a  business  Jul)'  i,  19 — ,  not  including  stock  of  goods, 
are  ^^8975.  ^^^  capital  Jan.  i,  same  year,  was  )^2iooo.  The  records  show 
a  net  profit  during  the  first  six  months  of  the  >ear  of  ^^3000.  If  there  are 
no  liabilities  July  i,  what  should  be  the  value  of  the  stock  of  goods  .' 

Questions 

I.  .Mention  ten  different  things  that  are  owned.  Mention  someriiing 
you  own.  2.  What  is  the  meaning  of  ownership  .'  3.  What  does  the  busi- 
ness man  expect  to  get  out  of  things  owned  by  him  :  4.  W  hat  function  has 
money  in  our  system  of  exchange  .'  5.  Define  credit.  6.  W  hat  is  a  cred- 
itor r  What  right  has  a  creditor?  7.  What  right  has  an  owner?  8.  What 
class  name  does  the  bookkeeper  give  to  things  owned  ?  9.  Do  things 
owned  sometimes  lose  their  value  ?  How  ?  10.  What  are  things  owned 
called  when  they  lose  their  value  ?  11.  Do  worthless  things  have  owners  ? 
12.  Dehne  debtor.  13.  Show  the  relatH>n  between  debtor  and  creditor. 
14.  Define  assets,  liabilities,  capital.  15.  What  should  an  accounting 
record  show  ? 

16.  Albert  Shire  is  in  the  business  of  selling  newspapers.  Nov.  i,  he 
is  the  owner  of  ^^7.50  and  has  no  debts.  Nov.  30,  he  is  the  owner  of  $18.20 
and  has  no  debts.  What  has  happened  in  Shire's  business  experience? 
17.  DeHne  profit.  iS.  Does  "  profit  "  indicate  the  thing  owned  or  the 
ownership  of  such  thing  ?  i<;.  In  the  case  of  .Albert  Shire's  business  ((]ues- 
tion  16),  did  rhe  i^io.70  increase  Nov.  30  exist  as  a  thing  owned  ?  Under 
what  title  was  the  increase  shown  ?  20.  What  is  value  :  Docs  value  exist 
as  a  physical  thing  or  an  attribute  of  sonurhing  ?      I.xplam.      21.    How  are 


20  ACCOUNTS    AND    ACCOUNTING    PRACTICE 

valuable  things,  such,  for  illustration,  as  apples  and  oranges,  originally 
produced  :  22.  Does  the  producer  pur  his  service,  or  labor,  into  the  thuig 
produced  '  Can  you  think  of  any  valuable  things  that  are  not  the  prod- 
uct of  labor:  Are  such  things  owned  r  23.  What  is  meant  by  the  state- 
ment :  "  Wealth  is  a  depository  of  value  "  r  24.  Does  a  child  receive 
strength  as  it  grows  ?  Does  a  calf  receive  value  as  it  increases  in  size  and 
age  ?  Does  every  article  of  wealth  receive  value  in  the  process  of  its  pro- 
duction r  Does  all  wealth  at  some  time  yield  or  give  back  in  some  form 
of  service  the  value  it  contains:  25.  If  a  thing  \  lelds  to  its  owner  less 
than  cost,  what  is  the  difference  called:  26.  Mow  are  things  of  value 
ac(]uired  in  business?  27.  If  we  exchange  )^ioo  in  money  for  the  same 
value  in  goods,  what  has  become  owned  by  us:  What  has  become  un- 
owned '  What  recei\ed  the  value  ?  Gave  the  value  :  Which  is  a  debtor  : 
Which  a  creditor  :     W'hv  : 


CONSTRUCTION    OF  ACCOUNTS 

VVe  have  thus  far  studied  the  husiness  as  a  whole  in  relation  to  its 
owners.  We  have  now  to  stud\  the  different  parts  of  the  husiness  in  rela- 
tion to  one  another.  Beginning,  as  hefore,  witii  the  fundamental  fact  of 
ownership,  inNoiving  the  thing  owned  and  its  owner,  we  shall  make  such  a 
complete  record  of  business  transactions  as  will  show  the  outcome  in  proHt 
or  loss. 

1  hings  owned  are  debtors,  and  since  things  that  become  owned  cost 
value,  that  zchich  costs  value  is  a  dt'htor.  Owners  are  creditors,  and  since 
owners  become  such  by  giving  value,  that  zchich  gives  value  is  a  creditor. 
Hence  the  rule : 

That  zchich  costs,  or  receives,  value  is  a  debtor;  that  zchich  gives,  or  pro- 
duces, value  is  a  creditor. 

Application  of  this  rule  will  be  made  easier  if  we  first  classify  all  trans- 
actions with  reference  to  time  of  performance.  When  we  sell  goods  for 
cash,  the  transaction  is  said  to  be  complete,  or  executed.  W  hen  we  sell 
goods  on  credit,  the  transaction  is  said  to  be  incomplete,  or  executory.  In 
entering  executed  transactions,  w'e  may  disregard  the  other  party  involved, 
j  debiting  that  which  becomes  owned,  or  costs  value,  and  crediting  that 
which  becomes  unowned,  or  produces  value.  In  e.xecutory  transactions, 
however,  we  must  debit  that  which  becomes  owned  and  credit  the  one  who 
gives  the  value;  or  credit  that  which  becomes  unowned  and  debit  the 
one  receiving  the  value.  But  it  should  be  noted  that  the  value  received 
or  parted  with  in  executory  transactions  is  sooner  or  later  returned  in  settle- 
ment of  the  debt  incurred  ;  in  other  words,  executory  transactions  ulti- 
mately become  executed.  From  these  considerations,  we  derive  the  fol- 
lowing comprehensive  rule  : 

General  Rule.  —  Debit  that  person,  department  of  the  business,  or  period 
of  time  that  receives,  or  costs,  value;  and  credit  that  person,  department  of  the 
business,  or  period  of  time  that  gives,  or  produces,  value. 

Since  money  is  the  medium  through  which  other  things  are   usually 
acquired  —  the  thing  with  which  other  things   are  purchased — we  shall 
I  start  with  cash  and  buy  other  things,  then  exchange  things  for  cash,  and 
I  finally  state  the  outcome  in  profit  or  loss. 

i 

zi 


22 


ACCOUNTS    AND    ACCOUNTING    PRACTICE 


Illustrative   Transactions 
Jan.  2,  19  David  lliirman  Ihli.iii  business  with  a  cash  investment 

of  }52000. 

riif  history  of  tliis  business  dates  from  the  proprietor's   investment. 

rile  one  who  writes  this  history  —  the  bookkeeper  —  is  not  concerned  witli 
Mr.  Hartman's  private  affairs;  it  is  his  duty  to  record  and  account  for 
such  portion  of  .Mr.  Hartman's  wealth  as  has  been  set  aside  as  the  capital 
of  this  particular  undertaking.      The  fact  of  David    Hartman's  ownership 

jan  2,  involving  the  owner  and  the  thing  owned,  requires  that  two  accounts 
be  opened  as  follows  : 

I^.wiD  Hartmax,  Capita  I, 


Jan. 


D.  Ilartman 


j                 20CX) 

This  record  differs  only  in  form  from  the  ownership  statements,  pages 
II  and  12,  and  merely  shows  the  relation  of  the  owner  to  the  thing  owned. 
One  is  a  creditor,  the  other  a  debtor.  Note  that  debtor  items  are  entered 
on  the  lefty  creditor  items  on  the  right,  side  of  the  account. 

Jan.  3.      Buy  of  Henry  Wilson  merchandise  valued  at  ^1000 
This  transaction  effects  a  transfer  of  value  from  the  cash  fund  to  the 
goods  fund  ;   cash  has  been  decreased,  goods  increased.     We  can  record  the 
receipt  of  goods  as  follows  : 

Merchandise  Stock 


19- 

II 

1             i        i 

Jan. 

3 

Cash 

1000 

1 

But  how  shall  we  indicate  the  decrease  of  the  cash  fund  :  In  arithmetic 
we  should  subtract  the  ^1000  paid  from  the  ^2000  received,  to  get  the 
"answer."  The  answer  to  our  problem  in  accountkeeping,  however,  is  not 
the  outcome  of  a  single  transaction,  but  the  result  of  a  long  series  of  trans- 
actions covering  months  or  perhaps  \ears.  Kventually  we  shall  subtract, 
bur  at  prr';iin  we  place  the  amount  paid  on  the  opposite  side,  thus: 


CONSTRUCTION    OF    ACCOUNTS 


23 


Cash 


Jan. 


:ooo 


I'; 

I..M. 


MJs...  Stock 


1000 


What  rcall\'  happtiud  in  this  transaction  was  tliat  l)a\ul  llaitinaii 
withdrew  )^iOOO  of  liis  cash  investment  and  rciin  cstcd  the  amount  in  ^oods. 
The  cash  was  passed  to  lUniy  Wilson  and  the  ^oods  were  received  from 
hini.  We  nii^ht  ha\e  debited  Hartinan  and  creditii.1  (\i.Ji,  for  the  cash 
withdrawn;  then  credited  Ilartni.in  aiul  debited  Wilson  lor  the  cash  paid 
by  Hartman  to  Wilson,  and  Hnall\  credited  W  ilson  and  debited  Mrrchandise 
Stock  for  the  merchandise  received  from  Wilson.  I^iit  the  relation  of  Hart- 
man  and  W  ilson  to  the  business  remains  unchaiiiied.  1  he  net  result  of  it 
all  has  been  to  increase  goods  account  and  decrease  (msIi  account  by  J^iooo. 
We  reason,  therefore,  that  Cash  has  given  value  to  Mrrrhnniliyr  Stnrk\  and 
record  the  fact  by  one  direct  entry.      Repeat  the  rule. 

Jan.    4.      Make  the  following  payments:    rent,  ^^50;    office  desk,    and 
chair,  .^^"^ ;    telephone  service  (January),  $j. 

Ihese  are  tvpes  of  things  with  which  the  business  is  carried  on.  Are 
thev  all  of  the  same  kind  ?  They  are  all  services  to  be  rendered.  Hut 
the  value  represented  in  the  ^50  for  rent  and  .^7  for  telephone  will  be  wholly 
consumed  in  one  month,  while  the  desk  and  chair  will  last,  perhaps,  20 
years.  One  exists  as  a  flow  of  service  while  the  other  exists  as  a  possession. 
Theoretically  there  is  no  difference,  but  practically  there  is  a  difference. 
Losses  arise  from  the  destruction  of  physical  things,  and  to  guard  against 
those  losses  we  usually  keep  them  insured.  For  this  and  other  reasons, 
which  will  be  shown  later,  the  desk  and  chair  must  be  accounted  tor  sep- 
aratelv.  "  Short-lived  "  things  ^  fuel,  postage,  stationery,  car  fares,  rent, 
and  the  like  —  we  charge  to  Expense  account ;  office  desk,  typew  titer, 
filing  cabinet,  safe,  etc.,  to  Offi,ce  Furniture  account,  thus  : 

C  ASH 


Iw 

1 

I'; 

J..n. 

: 

'    2000 

Jan. 

; 

1000 

1 

<  )rtici-  Furniture 

28 

4 

Kxpcnsi- 

50 

I 

1 

Kxpcnsf 

" 

Of 


I '; 


Jan.       4   ,   Cash 


FICI 


28 


y 


I"l<  \1  P     Kl. 


^4 


ACCOUNTS    .\M)    ArrOT'VTTXG    PRACTICE 


Expense 


19 

J:.n. 


Cash 


50 
7 
il 


\':iliic  to  tlic  ;inu)iinr  of  $18,  $>,o,  and  ^y  has  been  transferred  from  the 
Cash  divisit)n  of  the  business  to  the  Ojfici'  I'urniturt-  and  Expense  divisions. 
Debit  that  which  receives  or  costs  value;  credit  that  wliich  irives  or  pro- 
duces value. 

Jan.  5.     Sell  A.  J.  Hunt  for  cash  merchandise  valued  at  ^^400. 

I  his  transaction  shows  why  David  Ilartman  is  in  business.  While 
rent  and  telephone  service  consume  value,  merchandise  produces  value. 
If  we  assume  that  these  goods  were  sold  at  ^100  profit,  the  amount 
belongs  to  David  Ilartman,  and  might  properl\-  be  taken  by  him  in 
cash.  \  alue  to  the  amount  of  ^300  would  pass  from  Merchandise  Stock  to 
Cash.  Or,  if  the  proprietor  did  not  wish  to  draw  the  profit.  Cash  might  be 
charged  with  ^^400,  Merchandise  Stock  credited  with  ^300,  and  the  proprietor 
credited  with  ^100.  But  we  are  working  on  longer  lines.  We  shall  make 
other  sales  and  purchases,  and  have  other  e.xpenses,  and  at  the  end  of  the 
period  we  shall  sum  up  to  determine  the  outcome  in  profit  or  loss.  In  the 
meantime,  in  order  to  record  the  selling  price  of  all  goods  sold,  we  open  a 
Merchandise  Sales  account,  and  give  it  credit  for  the  value  which  this 
transaction  yielded,  thus: 

Cash 


19— 

II 

1 

1 

'    I'7- 

Jan. 

^ 

2000 
400 

1 

lan. 

1 

1000 

5 

Sales 

4 

■:        28 

4 

■1        50 

4 

7 

Mkrciia.ndise   Sales 


J..n. 


C\.sll 


400 


T  he  value  received  by  Cash  and  given  bv  Merchandise  Saies  ni  the  tore- 
going  transaction,  making  the  former  a  debtor  and  the  latter  a  creditor,  was 
borrowed  from  Merchandise  Stock.  CJoods  were  taken  from  stock  by  the  one 
making  the  sale  for  delivery.      Evcrv  cash  sale  will  eHect  a  transfer  of  value 


CONSTRUCTION    OF    ACCOUNTS 


25 


from  Merchandise  Stock  to  Merchandise  Sales  and  tVom  Merchandise  Sales 
to  Cash.     The  transfers  from   Merchandise  Stock   account  to  Merchandise 
Sales  will  he  adjusted  by  one  entry  at  the  end  of  the  accounting  period. 
Jan.  6.      Buy   of    Dwight    Brothers   for    cash,   merchandise   valued    at 

^5350-^ 

\'alue  moves  from  Cash  to  Merchandise  Stock;    Merchandise  Stock  is  a 

debtor,  (uish  a  creditor,  thus: 


Cash 


19  - 

1 

19 

Jan. 

5 

2000 
400 

1             1 

1       1 

J:.n. 

1 

.1 
4 
4 

4 

b 

Mdsf.  Stock 

1 

1000 

28 

50 

7 

350 

1 

19— 

J.Tn. 


3 
6 


Cash 


Merchandise  Stock 


1000 

350 

1 

1 

1 

Jan.  8.      Sell  Seymour  Holbrook  for  cash,  merchandise  valued  at  ^^450. 
1  he  sales  department  of  the  business  has  given  value,  cash  has  received 
value.     State  the  rule. 


Cash 


19 

19 

Jan. 

3 

2000 

'  Jan. 

3 

1 000  , 

6 

400 

4 

28 

8 

Sales 

450 

4 
4 
6 

SO 

7 

350 

Merchandise  Sales 

19 
Jan. 

5 
8 

Cash 

1 

450 

1 

26 


ACCOUNTS    AND    ACCOUNTING    PRACTICE 


Jan.  8.      I'.iy  Jnhn  Stout,  clerk  hire,  ,si^. 

I  Ins  crttcts  a  transfer  of  value  from  Cash  to  Expense.     Debit  the  latter, 
credit  the  former,  and  we  have 


Cash 


IV 

i'> 

.|:.M 

- 

;ooo 

Jan. 

J 

lOOO 

6 
8 

4CX) 
4SO 

4 
4 

28 

50 

4 

7 

6 

350 

8 

Expense 

1 

15 

ExPF-Nsr 


19- 
Jan. 


4 
4 
8     Cash 


SO 

7 
I ; 


It  IS  thus  that  acc(nints  arc  constructed.  Each  transaction  effects 
a  transfer  of  value  from  one  part  or  department  of  the  husmess  to  another. 
1  he  supply  of  one  kmd  of  value  can  be  mcreased  only  by  decreasmg  the 
supply  of  another  kmd  ;  and  a  record  by  which  we  indicate  both  the  in- 
crease of  the  one  and  decrease  of  the  other  is  called  a  "  double  entry." 

In  order  to  carry  our  accounting  exhibit  to  its  logical  conclusion,  with- 
out undue  repetition,  let  us  assume  that  the  transactions  of  David  Hartman 
during  the  remainder  of  January  resulted  as  follows: 


Cash  received 

i^icpo. 

Cash  paid 

1835 

Goods  purchased 

1600. 

Goods  sold 

I()00 

OHice  furnituii-  bouulit  for  cash 

C)0. 

E.xpenses  paid  in  cash 

175- 

These  transactions  111  rhe  aggregate  ha\e  transferred  value  to  the 
amount  of  ^^1^35  from  Cash  to  Mrrchatuiise  Stock,  Office  Furtiiture,  and 
Expense  in  amounts  of  ;;^i^oo,  ^()0,  and  ^^175,  respectively,  and  value  to  the 
amount  of  J^n^oo  from   Mirchandise  Sales  back  to  Cash. 

I  sing    Ian.    31  as  a  focal  date,  our  accounts  will  now  stand 


CONSTRUCTION'    OF    ACCOUNTS 


27 


Cas 


II 


'9 

1 

i  "^ 

Jan. 

2 

2000 

Jan. 

t 

,   1000 

6 

400 

4 

28 

8 

450 

4 

50 

31 

Sales 

1900 

4 
6 

8 

i 

7 

3  SO 

IS 

1 

31 

Sundries 

iS^q 

Merchandise  Stock 


iv 

1 

Jan. 

J 

6 
31 

Cash 

1 

1000 

350 

1600 

1 

Mfrchandise  Sales 


19— 

Jan. 


;,  I      Cash 


400 

450 
1900 


Jan.        4 


31 


Cash 


19— 
Jan.         4 

4 
8 

31 


Cash 


(Office  Furniture 


28 

60 

EXPFNSE 

SO 

7 

15 

1 

175 

1         II 


INTERPRETATION  OF  ACCOUNTS 

We  li.'i\<.'  thus  t;ii  illiistrarcd  rwo  steps  in  the  process  of  iLL«»nJing  busi- 
ness events.  lust,  we  exhihiteil  ;i  statement  of  owneisliip  on  a  j;i\en  date, 
and  mferpieted  that  statement  m  accouiitm^  terms.  Second,  we  recorded 
transfers  of  \  ahie  from  one  |i.iit  ot  thi  husmess  to  another,  and  showed 
the  effect  n\  those  transfers  in  terms  of  debtor  and  creditor.  A  .state- 
ment ot  ownership  holds  j^ood  only  for  the  date  upon  which  it  is  made, 
and  we  lia\e  now  to  ascertain  the  facts  and  prepare  a  statement  of  owner- 
ship as  of  Jan.  31. 

Daxul  Hartman's  ownership  Jan.  2  stood 

Cash  $2000.  David  1  lartman.  Capital  ;^2CXDO. 

The  proprietor's  one  asset  at  the  beginning  w-as  )^2000  cash.  We  have  a 
right  to  assume  that  the  one  responsible  for  the  record  actually  counted  the 
cash,  or  considered  evidences  of  its  existence,  and  Mi.  Hartman's  right  to 
its  use.  Nor  can  the  assets  on  any  subsequent  date  be  determined  from  the 
record.  The  record  is  one  of  past  events  and  does  not  show  present  condi- 
tions ;  It  may  show  w  hat  f)ur  holdings  ought  to  be,  it  does  not  sht)w  what  they 
are.  Recourse  must  accordingly  be  had  at  this  point,  since  these  assets 
have  a  tangible  existence,  to  the  things  themseKes.  Cash  must  be  counted, 
01  the  hank's  record  of  cash  on  deposit  consulted  ;  the  stock  of  goods  must 
be  weighed,  measured,  or  counted,  and  \  alued  ;  and  all  other  property  must 
be  appraised. 

Determining  the  extent  and  character  of  a  business  man's  assets  at 
any  given  time  involves  considerable  labor,  and  is  justified  only  when  it 
becomes  necessary  to  ascertain  the  exact  status  of  the  business.  Such  an 
event  marks  the  close  of  one  accounting  period  and  tlie  beginning  of 
another. 

If  we  assume  that  the  stock  of  goods  Jan.  31  inventories  at  i^975, 
office  furniture  at  i^88,  and  cash  at  ^1465,  these  values  represent  what 
this  period  of  time,  m  irs  respective  accounting  divisions,  passes  on  to  the 
next  period  for  its  use  and  service.  In  a  going  business  each  accounting 
period  p.isses  on  to  tlu'  next  all  its  holdings,  and  .1  n  conl  ot  this  transtcr 
from  the  old  period  to  the  new  requires  us  to  debit  the  latter  and  credit  the 
tormer.  thus  : 

28 


INTERPRKT.VTION    OF    ACCOUNTS 


29 


Cash 


19— 

Jan. 

2 

6 

8 

31 

I 
1 

Balance  from  Jan. 

19— 

Feb. 

l.^l 

20CX) 

'  Jan. 

400 

1 

450 

1900 

i 

4750 
1465 



4 
4 

4 

6  , 

8 

31  I 

31  Balance,  cash  on 
hand  carried 
to  Feb.  acct. 


Merchandise  Stock  (January) 


Merchandise  Stock  (February) 


Feb.  I 


Inventory 


975 

Office  Furniture 


1000 

28 

50 

7 

350 
15 

183s 


4750 


10 — 

19-   1 

Jan. 

3 
6 

ICXX3 
350 

Jan.      ^  I 

(joods  on  hand 
carried       to  j 

31 

1600 

i 
i 

Feb.  acct. 

1 

975 

If; — 
Jan. 

4 
31 

I 

Inventory 

2S 
60 

8S 

19 
Jan. 

31 

\  aluc  of  office 
furniture  car- 
ried   to    P"eb. 
acct. 

88 

88 

Feb. 

4.  If  David  llartman's  property  J.m.  2  was  ^2000,  and  His  property 
now  is  ^^252^,  something  lias  iiappcned  m  the  meantime  to  produce  this 
increase  of  ^^528.  and  this  brings  us  to  the  fourth  stage  of  our  in(]uiry; 
namely,  the  source'  of  profit  and  the  cause  of  loss. 


30 


ACCOUNTS    AND    ACCOUNTING    PRACTICE 


Proht  arises  in  ;i  mercanrilt*  business  from  the  output  of  goods,  and 
since  goods  pass  out  through  the  selling  department.  Sales  account  should 
show  selling  profit.  It  is  the  function  of  the  Salts  account,  then,  to  exhibit 
the  cost  and  selling  price  of  goods  sold. 

(loods  to  the  value  of  ^^2950  were  bought  and  placed  in  stock.  We  now 
hiul  only  )^975  worth  of  those  goods  on  hand.  The  fact  is  that  goods 
not  now  on  hand  ha\e  been  disposed  of  through  the  sales  department,  be- 
cause as  sales  were  made  from  time  to  time,  goods  were  taken  from  stock 
and  deh\"ered  to  customers.  We  might  have  credited  Mrrchandisc  Stock 
and  charged  Merchandise  Sales  in  each  such  transaction;  but  this  would 
entail  needless  labor,  as  we  may  now  record  the  total  transfer  of  value  from 
Merchandise  Stock  to  Merchandise  Sales  in  one  entry,  thus  : 


Mfr 


rn  \vri[«;F   rrncK 


»Q 

19— 

1 

j..n. 

3 
6 

31 

1000 

3  SO 
1600 

Jan. 

.31 

1 
31 

2950         i 

! 

carried  to  l\h. 
acct. 
31     Cost    of   poods 
sold,   to    Sales 
acct. 


Merchandise  Sales 


19— 
Jan. 


31 


Cost  price,  from 
Mdsc.  Stock 


1975 


19— 

Ian. 

S 

(Sellinji  Price) 

8 

tft                                44 

3» 

44                          44 

400 

450 
1900 


The  value  lodged  in  Merchandise  Stock,  then,  has  two  outlets:  That 
which  is  still  on  hand,  since  the  January  account  is  to  be  closed,  passes  to 
the  I'ebruary  account;  the  difference  between  that  wliich  was  bought  to 
sell  and  that  which  remains  unsold,  the  cost  price  of  goods  sold,  passes  to 
the  Merchandise  Sales  account.  And  since  we  h:id  already  credited  Mer- 
chandise Sales  with  the  selling  price  of  goods  sold,  this  account  must  now 
show  the  profit  from  sales.  Hut  there  is  an  offset  to  this  selling  profit  the 
cost  of  things  used  to  run  the  business  which  we  have  lodged  in  the 
Expense  account.  I  he  net  earnings  of  the  business  will  accordingly  be  the 
difference  between  gross  earnings  and  expenses.  Since  tlu'  Merchandise 
Sales  account  shows  one  of  these  items,  and  the  Expense  account  the  other, 
we  can  find  the  difference,  if  we  would  obser\e  accounting  practice.  onl\-  h\ 
transferring  both  items  to  ;i  third  account         /'"■/''  ■•"'  Loss  —  thus: 


INTKRPRF.TATION'    OF    ACCOUNTS 


U 


Merchandise  Sales 


19— 

Jan.      3  1     Mdse.  Stock 

3  I    Ciross  profit,  car- 
ried   to    Profit 
I  is;    Loss   acct. 


1975 

775 
2750 

Jan. 

5 
8 

31 

1 

Expense 


19^ 

Jan. 


4 
4 
8 

31 


19— 

50 

Jan. 

31 

7 

15 

1  -; 

-47  , 

1 

Profit    &:    Loss 
acct. 


Profit  &  Loss 


19— 

Jan.      3 1      Expense 


247 


19— 
Jan. 


31 


Sales  acct. 


775 


It  is  the  function  of  the  Profit  i^  Loss  account  to  exhibit  on  the  one 
hand  the  earnings,  and  on  the  other  the  expenses  and  incidental  losses,  of  the 
business.  It  summarizes  the  results  of  all  accounts  that  show  increases 
or  absorptions  of  value.  These  accounts  are  the  channels  through  which 
our  fund  of  value  is  increased  or  decreased  ;  they  measure,  and  the  Profit 
y  Loss  account  records,  the  earning  power  of  the  business.  \  he  conclusion  to 
which  the  Profit  ly  Loss  account  leads  is  net  profit.  This  is  the  proprietor's 
increase  of  ownership,  and  the  Profit  i^  Loss  account  is  the  medium  through 
wiiich  it  is  passed  to  his  credit,  thus: 

Profit  &  Loss 


Sales  acct. 


I'J 

1 

19 

Jan. 

31 

Expense 

^47 

Jan. 

31 

Net  profit,  car- 

1 
1 

ried  to  David 

Ilartman 

528 

32 


ACCOUNTS    AND    ACCOUNTING    PRACHCE 


Dw  11)11  MriM  W,    C\\!MTAL 


•9-!      I 

j.iii.  3 1  Present  Capi- 
tal, c  a  r  r  i  i  d 
down 


:;28 


I'; 

j.in.        2 

Investment 

31 

Net      profit, 

brought  from 

I'roHt  &:  Loss 

1  ,9— 
Fib,      I 

I'nstnt  Capital 

hrmiL'tit  ilouii 

2528 


Asscnihlinp;  npain  the  evidences  of  value  in  relation  to  the  proprietor's 
worth,  wc  ha\e  HnalK' 


Balance  Sheet 


Assets  : 
Cash 

Stock  of  Goods 
Office       Iiirni- 
turc 


1      1 

1465 

975 

88 
2528 

1 

1 

1 

1 
1 

David   llart- 
nian,  Capital 


2528 


:;:S 


As  the  Profit  l^  Loss  account  shows  the  earning  power  of  the  business, 
the  Balance  Sheet  shows  \ts  financial  power  —  that  wherewith  it  may  meet 
its  financial  obligations  —  as  well  as  the  character  and  extent  of  those 
obligations. 


CLASSIFICATION  OF  ACCOUNTS 

The  foregoing  sumiiiary  lias  iiivoKed  two  considerations:  First,  the 
proprietor's  investment  (as  shown  by  his  assets  at  the  beginning)  in  rehi- 
tion  to  his  assets  at  the  end  of  this  business  period  ;  second,  rlie  difference 
between  tlie  cost  and  the  selhng  price  of  goods  sold,  in  relation  to  ex- 
penses. The  business  man  determines  his  profit  or  his  loss  by  the  simple 
method  of  comparing  what  he  had  at  some  previous  time  with  what  lu-  has 
at  the  present;  Inir  between  these  points  in  tinu-  lies  the  source  or  the 
cause. 

These  two  phases  of  the  situation  ma}-  be  shown  bv  presenting  in  one 
group  for  comparison,  the  earnings  and  expenses  of  the  business  bctzvi-tu 
given  dates,  and  in  another  its  assets,  liabilities,  and  capital  07i  those 
dates.  One  is  an  experience  in  time,  the  other  a  record  of  facts  at  the 
beginning  and  at  the  end  of  that  experience.  One  is  a  record  of  what  has 
been  done,  in  so  far  as  events  have  contributed  to  the  outcome  in  profit  or 
loss ;  the  other  is  a  statement  and  comparison  of  ownership  in  corrobora- 
tion. 

The  end  and  aim  of  all  business  is  to  realize  a  profit.  A  necessarv 
outcome  of  this  purpose  is  to  suffer  pecuniary  disadvantages  in  the  way  of 
expenses  and  occasional  losses.  Accounts  that  enter  into  a  calculation  of 
the  profit  or  loss  of  a  business  are  called,  variously,  "  profit  and  loss," 
"  revenue,"  "  w^orking,"  and  "  economic  "  accounts.  Each  of  these  is 
descriptive.  Profit  and  loss  is  a  clumsy  adjective;  and  the  use  of  **  loss," 
as  including  legitimate  expenses  of  the  business,  is  unfortunate.  What  are 
called  losses  by  many  writers  on  the  subject  are  really  the  profit-earning 
agencies  of  the  business.  They  are  revenue  accounts,  as  they  indicate  the 
channels  through  which  revenue  reaches  the  business;  but  this  term  seems 
to  exclude  outgo  —  the  expenses  and  incidental  losses.  Fhev  are  zvorking 
accounts  in  that  they  show  the  work  accomplished  ;  but  this  term  is  not 
very  suggestive.  This  class  of  accounts  reflects  the  thrift  and  economy  of 
the  proprietor  in  the  management  of  his  property;  and  the  term  economic 
seems  to  be  more  broadly  descriptive  than  any  of  the  others. 

An  incident  of  profit  making  is  meeting  current  business  obligations 
(liabilities),  and  maintaining  the  credit  standing  and  consequent  purchas- 
ing power  ot  the  business.  Accounts  that  exhibit  assets  or  liabilities  are 
called,  variously,  "  capital,"  "  financial,"  and  "  specific  "  accounts.  Thev 
are  capital  accounts  in   that  capital   is  the  difference  between  assets  and 

33 


34  ACCOUNl.^    AMj    AenaNTIXG    PRACTICE 

liabilities.  They  iw^  financial  accounts  because  they  measure  the  financial 
power  of  the  business.  And  they  are  specific  accounts  in  that  tliey  specify 
the  things  of  which  the  business  is  composed,  and  indicate  the  ownership 
of  those  thm^s. 

Mu-  economic  accounts  uuhcatc  business  efficiency;  the  capital 
accounts,  financial  efficienc\ .  Business  efficiency  is  profit-earning  power; 
financial  efficiency  is  debr-paying  or  purchasing  power.  I  he  ratio  of 
value  production  to  value  consumption  is  profit-earning  power,  or  business 
efficiency.  1  he  ratio  ot  means  of  pavment  to  liabilities  is  debt-paving  power, 
or  financial  efficiency. 

Business  and  Financial  Statement 

1  he  calculation  ot  profit  earned,  together  with  an  exhibit  of  assets  and 
liabilities  in  relation  to  investment  in  corroboration,  should  be  presented 
periodically  in  the  form  of  a  statement.  Such  a  statement  should  show  the 
amount  ot  business  done  and  the  cost  of  doing  it  in  one  section,  the  condition 
ot  the  tinances  the  assets  and  tin-  debts  in  another  section,  tliereby 
gning  etfect  to  the  dual  aspect  ot  the  business  and  presenting  in  compact 
form  the  operations  of  the  concern  during  the  period  covered,  as  well  as  the 
means  available  for  future  operations. 

As  business  methods  improve  and  competition  grows  keener,  those 
responsible  tor  the  success  or  tailure  of  business  undertakings  are  stud\"ing 
more  closely  the  problems  involved.  The  Business  &:  Financial  Statement 
is  the  basis  of  such  study,  and  is  called  for  at  shorter  intervals  than  formerly. 
Fiscal  periods  are  shortening.  1  he  laws  in  nearly  all  jurisdictions  require 
banks,  trust  companies,  and  other  financial  institutions  to  publish  annual 
or  semi-annual  statements  of  their  financial  affairs.  Income  statements 
are  required  ot  all  who  are,  under  the  law,  subject  to  an  income  ta.x.  Busi- 
ness and  financial  statements  are  often  published  ft)r  advertising  purposes, 
and  submitted  to  commercial  agencies  to  secure  financial  standing  in  them. 
'1  o  the  manager,  a  statement  at  frequent  intervals  is  indispensable  as  a 
summary  of  past  events  and  a  guide  to  future  policy.  Because  it  is  in- 
tended for  those  who  may  not  understand  accounting  terms  and  forms,  the 
Statement  should  be  free  of  all  technicalities;  it  should  tell  the  whole 
truth  in  simple  terms.  (For  form  of  Business  &:  Financial  Statement, 
see  page  S4.) 

Personal  Accounts 

Because  the  accounts  to  which  personal  relations  give  rise  are  only  in- 
cidental and  not  strictly  a  part  of  the  interior  ;iccounting  organization,  they 
have  been  left  to  be  treated  separately. 

Debit  and  credit  relations  with  individuals,  other  than  the  proprietor, 
are  the  outcome  ot  e\ecuror\'  transactions.      Based  upon  an  agreement,  ex- 


CLASSIFICATION    OF    ACCOUNTS 


35 


pressed  or  implied,  to  pay  money  at  some  future  time,  tliey  have  a  definite 
relation  to  the  cash  account.  Debts  owed  to  us  (debtors)  mav  be  re- 
garded as  "  future  cash  "  or  things  owned  b\  us.  Debts  owed  b\  us 
(creditors)  must  be  jiaid  m  cash,  and  the\'  represent  a  pecuniar\'  interest 
in  our  assets  (see  pages  12  and  14).  This  does  not  nuan  that  jiersonal 
accounts  are  debited  and  credited  only  for  cash  pa\  nients.  In  a  mercantile 
business  customers  are  usually  charged  for  goods  sold  them  and  credited 
when  such  charges  are  settled.  Settlement  may  be  made  bv  a  return  ot  a 
part  or  all  of  the  goods,  by  note,  by  acceptance  of  a  draft,  or  by  cash. 
1  hey  are  often  credited  tor  allowances,  rebates,  and  discounts.  These 
same  conditions  reversed  create  and  extinguish  accounts  with  those  from 
whom  goods  are  bought. 

One  way  in  which  personal  accounts  differ  from  all  others  is  that  they 
increase  wirh  the  increasing  number  of  people  with  whom  a  cud  it  business 
is  done.  One  sales  account  will  record  sales  aggregating  )^i 00000  as 
easily  as  it  will  record  sales  aggregating  J^ioo.  But  the  larger  business 
might  involve  accounts  with  500  or  5000  customers.  The  transient  nature 
ot  many  personal  accounts  —  the  rapidity  with  which  new  names  often 
appear  and  old  ones  disappear —  makes  it  necessary,  where  an v considerable 
number  are  involved,  to  handle  them  in  separate  groups  and  in  a  different 
way.  \  he  accounts  of  customers  are  referred  to  collectively  as  "  accounts 
receivable  ";    those  of  trade  creditors,  as  "  accounts  payable." 


Illustrative  Transactions 

EXHRCISF'     I 

I.  T.et  us  assume  that  the  following  sales  are  made,  all  on  terms  of 
10  da\  s"  credit  : 

Nov.  2,  E.  A.  Watkins,  ^5356;  Nov.  4,  \V.  F.  Thayer,  ^76.85  ;  Nov.  10, 
K.  .A.  Watkins,  /112;  Nov.  11,  A.  G.  Gould,  ;/^2 18.36;  Nov.  20,  A.  CJ. 
Gould,  ^^87.50;   Nov.  26,  \V.  F.  'Fhayer,  ^231.18. 

I  his  is  material  from  which  to  construct  the  following  accounts  : 

Mkrchandisk  Sai.ks 


Nov 


10 
1 1 
20 
26 


I  I :: 

87  !  50 
231     18 


36 


aclxjunts  and  accounting  practice 


E.  A.  Watkins,  l^)rtlaIu^,  Oregon 


19- 

Nov. 

■» 

Net,  10  days 

.»>' 

10 

1  I  ; 

W.  |- .    riix^iR.  Spokane,  Wash. 


19- 

Nov. 

4 

Net, 

10  days   i 

76 

851 

1 

;       1 

26 

231 

1 
1 

i8i 

A.  G.  GoL'i.D,  Boise  Ch\\  Idaho 


19— 
Nov.    II 
20 


I 


Net,  10  days 


::i8    36 
^7    50 


Copy  the  above  accounts  on  a  sheet  of  ledger  paper.  Assume  that 
Gould  returned  j^oods  Nov.  17  to  the  value  of  {i^ay ;  that  Watkins  returned 
goods  Nov.  I  I  to  the  value  of  $18.50;  and  that  all  other  indebtedness  was 
settled  HI  cash  at  maturity.  Credit  persons  for  the  value  they  give.  Debit 
Merchandise  Sales  for  goods  returned  by  customers.  Open  a  Cash  account 
and  charge  cash  for  the  value  it  receives. 

2.  -    Make  the  following  purchases  on  terms  of  20  days'  credit  : 

May  7,  Bossard  &:  Co.,  $436.57 ;  May  8,  The  l^enham-Batcs  Company, 
$650;  May  15,  Bossard  &  Co.,  $346.84;  May  17,  Voss  &:  Voss,  $213.12; 
May  23,  The  Benham-Bates  Company,  $218.60;  May  24,  Bossard  &:  Co., 
$96.50. 

On  a  sheet  of  ledger  paper  open  accounts  with  these  persons  and  one 
with  Merchandise  Stock.  In  accordance  with  the  general  rule  (page  21) 
group  the  above  items  in  account  form. 

3.-  Assume  that,  in  the  above  exercise,  Voss  &  \  oss  made  us  an  allow- 
ance on  the  invoice  of  May  17  for  short  delivery  of  $10.50,  for  which  credit 
Merchandise  Stock;  and  that  all  other  items  were  settled  at  maturity  in 
cash.     Show  how  these  settlements  would  aflect  the  accounts  involved. 

4. — Open  a  ledger  account  with  Both  &:  Weston  and  show  by  entries 
in  the  account  how  it  would  be  affected  by  the  following  transactions: 
Feb.  I,  19-  ,  we  owe  them  $250.  Feb.  7  we  pay  them  $200.  Feb.  9  we 
buy  of  them  goods  to  the  value  of  $325.  Feb.  12  we  return  goods  for 
credit,  ^^J.^^,.  Feb.  20  we  give  them  our  note  at  20  days  for  $200  and  cash 
for  the  balance  due. 


CLASSIFICATION    OF    ACCOUNTS 


37 


5. — Write  out  in  words  at  length   statements  of  events  that  would 
give  rise  to  the  following  entries  on  your  ledger. 


Stephen   K.  Adler  &  Co.,  Houston,  Texas 


19— 

1 

1 
19— 

1 

May 

I 

net  30  days 

37 

3  5^^ 

40 

May 

31 

43 

,     35^    40 

27 

68 

117 

63 

June 

10 

52 

i      35 

60 

June 

8 

net  cash 

72 

35 

60 

26 

61 

117    63 

17 

net  30  days 

« 

8; 

■  r  1  ^ 

10  ■ 

S  z 

30 

Balance  c/d 

\' 

486 

19 

'I'i^ 

82 

19 — 

July 

I 

Balance  b,  d 

V 

4" 

'     ■ 

1 

it 

BeNH  AM 

Sons 

c\'     Co 

.,  768  Broadway,  New  York 

ii; — 
May 

12 

46      342 

87 

1  ''^ 
Mar. 

13 

net  60  days 

34 

3  4- 

87 

15 

Returns 

12      125 

25 

it     <(       li 

44 

786 

16 

4S      212 

16 

April 

16 

"     30     '• 

52 

212 

16 

>7 

Freight 

4'>          18 

50 

27 

"    60     " 

57 

345 

74 

-4 

52 

400 

30 

Balance  c/d 

V 

588 

24 

Ib8b 

1686 

77 

19 

June 

I 

Balance  b/d 

V 

588 

-4 

Classification  and  Comparison 

If  the  proprietor  would  know  at  the  end  of  any  stated  period  w  hat  have 
hcen  his  purchases,  sales,  expenses,  and  business  in  the  aggregate  during  the 
period,  and  the  outcome  ot  his  business  in  profit  or  loss,  transactions  must 
be  recorded  in  such  groups  as  will  e.xhibit  the  result  of  each  business  activity. 
In  forming  groups  of  items  your  knowledge  of  the  principles  of  arithmetic 
in  combining  concrete  numbers  is  a  sufficient  guide.  ()nl\  like  numbers 
may  be  added,  and  only  like  items  may  comprise  the  same  group.  The 
work  of  the  bookkeeper  is  essentially  a  work  of  classification  and  com- 
parison. With  these  suggestions  in  mind,  you  may  begin  now  with  business 
transactions  and  collect,  classify,  and  record  tacts  and  e\ents  in  related 
groups,  and  tinallv  determine  the  results  to  which  such  facts  and  events 
lead. 


38  ACCOUNTS    AND    ACCOUNTIXC    PRACTICE 

Illustrative  Transactions 

P^XERCISi:    2 

Jan.  2,  19  .  1' It  tl (.- 1  ic k  \\  aid  is  cn^a^cd  in  the  husiiu-ss  of  Inivin^  and 
sellint:  wluat,  with  an  inNcstnunt  of  ^^5500  in  cash. 

2.  lUi\  of  \\  illtf  l^rothers  for  cash  300  bu.  ffi  wheat   fi  00(^. 

3.  Buy  of  \\  .  \\  .  Orr  for  cash  300  hu.  ,«2  wheat   ^  8oe. 

4.  Sell  Wilson  ^  oLing  for  cash  2CX)  hu.  fji  wheat   (n.  )?i.o5. 

5-   Buy  of  A.  W  .  Gates  &  Son  for  cash  400  bu.  ^i. wheat   @  95^. 
6.  Sell  H.  ().  \  ooris  for  cash  100  bu.  #1  wheat   (a  )^i.io. 

8.  Buy  of  Henry  Wood  &  Co.  for  cash  500  bu.  jfZ  wheat   (5,  85$^. 

9.  Sell  Albert  Cummings  for  cash  300  bu.  jf2  wheat   ^  $1. 
10.   Sell  Wilson  ^'oung  for  cash  200  bu.  jfi  wheat   (n  $1.10. 

12.  St.ll  the  Stewart  Milling  Co.  for  cash  200  bu.  ^'2  wheat   ^/.  98^*. 

13  Buv  of  .\.  W.  Gates  &:  Son  for  cash  5000  bu.  •••  i  wheat   @;  98jf. 

14.  Sell  Dunn  &:  Dolan  for  cash  300  bu.  -1  wheat    (o  99^. 

15.  Stll  11.  ().  \c)oris  for  cash  5000  bu.  --i  wheat   ^  i5i.o8. 

Procedure 

Record  In  one  group  all  purchases  of  #1  wheat,  and  directly  under- 
neath in  another  group  the  purchases  of  #2  wheat.  State  the  total  cjuantity 
of  each  kind  of  wheat  purchased  and  the  value  of  all  purchases.  In  the 
same  manner  group  the  sales.  I'lnd  the  total  amount  of  cash  received  by 
the  business,  including  the  cash  investment.  I'lnd  the  total  of  cash  paid. 
Find  the  amount  of  cash  the  business  should  have  on  hand. 

If  you  were  the  cashier  of  this  business,  how  would  you  verify  this 
calculation  ?  For  what  purpose  was  the  wheat  bought  .'  How  many  bushels 
of  each  kind  ?  How  many  bushels  of  each  kind  were  sold  r  Should  there 
be  any  wheat  on  hand  Jan.  i;  r  llow  much  :  What  is  it  worth  (cost  of 
last  invoice,  98^)  ?  Do  the  facts  that  we  bought  so  many  bushels  and  sold 
so  many  bushels  prove  that  we  ha\c  so  much  left  :  What  might  have 
happened  to  the  wheat  not  sold:  llow  would  a  business  man  tletermine 
the  quantitv  and  value  of  property  on  hand  at  any  given  time.' 

Assuming  that  Mr.  W  ard  has  the  money  and  wheat  that  your  records 
show  he  ought  to  have,  what  is  Mr.  Ward's  capital  Jan.  15'  1  low  much  did 
he  invest  ?  The  ditteience  between  his  capital  Jan.  i  and  Jan.  15  must  rep- 
resent what  ? 

If  vou  find  that  Mr.  Ward's  business  has  earned  a  proHt  or  suffered  a 
loss,  you  should  now  determine  the  source  of  such  profit  or  the  cause  of 
such  loss.      L  se  the  following  formula  : 


CLASSIFICATION    OF    ACCOUNTS 


39 


Source  of  proHt  (or  cause  of  loss)  : 

Selling  price  of  wheat  sold  $ 

Cost  price  of  wheat  bou<iht  to  be  sold     ^ 
Cost  price  of  wheat  unsold 
Cost  price  of  wheat  sold 

Profit  for  loss)  ^ 

Note.  —  If  a  loss  has  been  sustained,  the  amount  is  obtained  by  inverse  subtraction. 

Profit,  then,  is  the  outcome  of  what  two  factors  .'  In  your  calculation, 
does  the  difference  between  the  cost  and  selling  price  of  the  wheat  sold 
agree  with   the  difference  between  investment   and   present   capital  ? 

Assuming  that  .Mr.  Ward's  business  expenses  were  ^^350,  what  was 
his  profit  or  loss  .''  Assuming  that  his  expenses  were  $756,  what  was  his 
profit  or  loss  ?  Describe  two  methods  of  finding  the  profit  or  loss  of  a 
business. 

Problems 

1.  Jones  &  Jackson,  merchants,  had  property  Jan.  i,  19 — ,  valued  at 
}5i8756.  On  Dec.  31,  same  year,  their  property  was  worth  ^^24365.  (a) 
What  was  their  profit  during  the  year  ^  {b)  Goods  that  have  been  sold 
for  5^32918  at  a  profit  of  ^8609  must  have  cost  how  much  ?  ic)  The  goods 
referred  to  in  {b)  were  sold  at  what  profit  per  cent  ?  (d)  The  investment  of 
Jones  &  Jackson  earned  what  per  cent  of  profit,  assuming  that  there  were 
)^3000  business  expenses  r     (e)  State  two  methods  of  calculating  profit. 

2.  Richard  Stanley  began  business  Oct.  i,  19 — ,  with  an  investment 
of  J^Sooo  in  cash  and  real  estate  valued  at  ^18375.  One  year  later  Stanley's 
assets  were  ^^37657  and  he  owed  ^5345.  What  had  been  his  profit  or  loss  .'' 
His  profit  or  loss  per  cent  on  investment  ? 

3.  The  firm  of  Richter  &  Rogers  had  a  stock  of  merchandise  June  30, 
19 — ,  valued  at  ^12475.  During  the  following  six  months  they  purchased 
^15680  and  sold  ^^24690  in  goods.  If  the  sales  averaged  a  profit  of  27%, 
what  should  have  been  the  value  of  the  stock  Dec.  3  i,  of  same  year  .''  \\'hat 
was  the  cost  price  of  the  goods  sold  ? 

4.  E.  M.  Boles  &  Son,  merchants,  inventory  their  stock  Jan.  i,  19 — , 
at  ^17680.  During  the  year  they  purchased  ^'^23496  worth  of  goods.  Dec. 
31,  of  same  year,  their  stock  was  valued  at  )?  15540.  Assuming  that  all 
goods  not  in  stock  had  been  sold,  find  the  cost  price  of  the  goods  sold. 
.\r  what  price  must  these  goods  be  sold  to  make  a  profit  of  25  %  ^  At  what 
price  must  they  be  sold  to  make  a  mt  jMoht  of  15%  after  deducting  running 
expenses  of  ^^3500  ? 

5.  Johnson  &  Co.  commenced  a  trading  business  April  i,  19 — .  Dur- 
in;4  the  six  months  ended  Sept.  30,  of  same  year,  thcv  had  purchased  ^^27000 


40  ACCOUNTS    AND    ACCOUNTING    PKACTICE 

in  goods.  Their  .sales  during  the  same  period  amounted  to  ^^1530x3.  Stock 
on  hand  Sept.  30,  of  same  year,  was  vahied  at  J^17450.  Freight  and  drayage 
on  goods  bought  during  the  period  had  been  ^^517.  (a)  Find  the  cost  of 
goods  sold,  (h)   the  gross  profit,  ami  ir)  the  selling  profit  per  cent. 

6.  A  fire  on  Aug.  17,  19 — ,  destroyed  the  entire  stock  of  Rurns  & 
lielcher,  carpet  dealers.  Ihe  stock  was  insured  and  the  insurance  company 
settled  for  ^30000.  Their  books  showed  that  the  stock  inventoried  Jan.  31, 
same  year,  at  ^^37X03.  i'urchases  tor  the  period  leb.  1  to  Aug.  17,  were 
J?26iS6.70.  Sales  for  the  same  period,  ,"^32641.  1"  reight  and  drayage  on 
purchases  had  been  ^^816.50,  and  running  expenses  ^^6148. 73.  Find  the 
net  profit  or  the  loss. 

7.  Price  &  Paradis,  grocers,  had  a  stock  of  goods,  cash,  and  other 
property  Jan.  i,  19 — ,  valued  at  ^18375.  Their  debts  at  that  time  amounted 
to  }^63i7.  During  the  past  year  they  had  made  a  net  profit  of  ^^23^x3.  Jan. 
I,  past  year,  their  debts  were  {^5627.  What  must  have  been  the  value  of 
their  assets  at  the  beginning  of  the  past  year  : 

8.  James  Wilson  began  business  Jan.  i,  19 — ,  with  a  capital  of  5^5000. 
During  the  year  following  he  drew  from  the  business  )^330.  His  gross 
profit  was  ^^2739. 87.  His  losses  and  expenses  were  $1213.  What  was  his 
capital  Dec.  31,  same  year  ? 


CONTENT  AND  FORM  OF  THE  RECORD 

The  content  and  the  ioim  ot  a  business  record  are  determined  by 
chrterent  considerations.  Because  the  memory  is  untrust\Northy  and  some 
people  are  dishonest,  books  are  kept  as  evidence  of  executory  agreements. 
Rules  of  evidence  require  that  the  record  should  be  made  when  the  trans- 
action occurs  by  some  one  having  adequate  personal  knowledge  of  the  terms 
involved.  1  his  consideration  makes  it  necessary  to  date  all  transactions 
and  carefully  state  the  terms  of  all  agreements.  Original  entries,  not  copies, 
are  admitted  as  evidence  by  the  courts  in  case  of  litigation,  and  this  written 
testimony  should  not  be  impeached  by  erasures  nor  its  value  impaired  by 
alterations  not  tully  explained.  Make  your  entries  tell  the  zcliole  truth.  Cor- 
rections should  be  fully  explained.      Never  erase  an  original  entry. 

Aside  from  its  value  as  evidence  of  the  relations  with  outside  parties, 
a  record  is  kept  for  the  information  and  direction  of  those  responsible  for  the 
success  of  the  business  involved.  Past  experience  should  serve  as  a  guide 
to  future  policy,  and  a  record  of  this  experience  in  all  its  detail  is  essential 
to  the  success  of  a  business  of  any  size. 

In  the  accomplishment  of  the  various  purposes  for  which  books  are 
kept,  if  the  bookkeeper  would  economize  time  and  labor,  if  he  would  avoid 
errors  and  entanglements  from  which  he  will  hnd  it  difHcult  to  extricate 
himself,  one  rule  must  determine  the  procedure  in  every  case  involving  the 
same  conditions.  In  other  words,  the  bookkeeper  should  have  a  form  for 
eacli  type  and  kind  of  entry,  and  adhere  strictly  to  that  form.  Each  part 
of  the  entry  should  have  a  definite  position  with  reference  to  the  other  parts. 
In  this  way  only  can  entries  be  made  brief  and  compact,  and  omission  of 
important  parts  be  prevented. 

If  entries  are  made  as  transactions  occur,  they  must  appear  in  the 
record  in  chronological  order.  Any  narrative  of  daily  events  is  called  a 
"  journal,"  and  from  this  meaning  of  the  w^ord  we  get  the  name  of  the  book, 
or  collection  of  books,  in  which  business  events  are  written  in  order  of 
time.  The  journal,  then,  is  the  book  of  first  entry,  containing  a  record 
of  transactions,  in  the  order  of  their  occurrence,  including  all  the  divisions  of 
that  book,  such  as  cash  book,  sales  book,  purchase  book,  bill  book,  etc. 

An  unclassified  chronological  record,  as  a  hook  of  reference,  is  inade- 
quate. Questions  are  all  the  time  arising,  such,  for  instance,  as  those  asked 
in  connection  with  exercise  2,  page  39,  that  can  be  answered  only  by  classi- 
fying, analyzing,  and  comparing  the  facts  of  the  business;  and  if  he  would 
be  in  a  position  to   answer  these  (juestions,  the  bookkeeper   must   assort 

41 


42 


ACCOUNTS   yVND   ACCOUNTING    PRACTFrF 


tlic  uiicliissihcd  luisiness  data  and  ^roup  the  related  facts  in  a  second  book. 
Another  consideration,  therefore,  that  determines  the  form  of  the  first  entry 
is,  that  the  essential  facts  of  this  entry,  such  as  the  date,  terms,  and  amount, 
must  be  transferred  to  a  second  book,  and  since  this  transfer  is  attended  with 
painstaking  care  to  prevent  errors,  the  form  of  tlie  journal  t-ntry  should 
facilitate  in  everv  way  possible  the  labor  involved. 

Acc()rdin^I\',  two  records  should  be  kept.  I  he  first,  which  will  appear 
in  chronological  order,  should  contain  all  the  facts,  and  be  written  in  con- 
venient form  for  transfer.  1  he  final  entry,  a  restatement  of  the  essential 
facts  of  the  first,  should  be  arranged  in  systematic  form  for  convenient 
reference.  I  his  transfer  of  entries  from  the  journal  is  called  "  postinj;," 
and  the  book  in  which  these  entries  are  finally  lodged  is  called  the  "  ledger." 
A  group  of  related  facts  assembled  in  the  ledger  to  indicate  the  outcome  of 
some  particular  activity  or  department  of  the  business  is  called  an  "  ac- 
count." A  group  of  related  accounts,  or  conclusions  resulting  therefrom, 
is  called  a  "  statement  "  or  a  "  balance  sheet." 

The  following  exercises  are  intended  to  give  the  student  practice  in 
applying  the  principles  involved  in  double  entry  bookkeeping,  or  rules  for 
journalizing.  Much  may  be  gained  in  the  mastery  of  these  principles  by 
writing  out  in  words  at  length  the  name  or  names  of  the  debtor  and  creditor 
elements  in  each  transaction.  This  form  of  statement  is  called  a  "  journal 
entry  "  ;  the  work  of  recording  transactions  in  this  way,  "  journalizing." 

You  must  interpret  each  transaction  in  terms  of  debtor  and  creditor. 
In  each  completed  transaction  there  is  a  transfer  of  value  from  one  part  of 
the  business  to  another,  transactions  not  completed  involve  persons 
outside  the  business.  Debit  that  person,  department  of  the  business,  or 
period  of  time  that  receives  value.  Credit  that  person,  department  of  the 
business,  or  period  of  time  that  gives  value. 

Illustrative  Transactions 

Exercise  3 

Nov.  I,  19 —  (current  year).  P.  A.  Morgan  begins  a  wholesale  shoe 
business  with  a  cash  investment  of  ^^8500. 

Ihis  event   recorded   in   the  journal  would   take  the  following    form  : 

(Your  City  or    Iovvn)     November,   tq  — 


Cash 

P.  :\.  .Morgan,  Capital 
Invest  nunc 


8:;00 


.s:;oo 


COXTEXT  AND  FORM  OF  THE  RECORD 


43 


This  is  the  bookkeeper's  w  ay  of  stating  that  P.  A.  Morgan  is  the  owner 
of  ^^8500  which  he  has  set  aside  for  the  use  of  a  certain  business  undertaking. 
The  thing  owned  is  a  debtor;   the  owner,  a  creditor. 

Note.  —  It  is  assumed  that  owners  have  given  value  in  exchange  for  the  things  owned. 
This  assumption  holds  good  in  every  business  transaction.  Things  are  sometimes  acquired 
by  gift  or  inheritance ;  but  even  in  such  cases  there  is  the  legal  consideration  of  love  and 
affection,  or  faiiiil\'  relationship.  Some  inducement,  or  consideration,  always  prompts  the 
giver.  It  is  the  function  of  the  bookkeeper,  however,  to  record  facts.  The  facts  involved 
in  an  opening  entry  of  a  business  undertaking  are  (i)  the  things  owned  by  the  proprietor 
of  the  business  and  their  value,  and  (2)  the  owner  or  owners  of  such  things  and  the  value 
of  their  property  rights. 

Nov.  I.  Lease  offices  and  business  premises  of  Ik-njaniin  Webster, 
agent,  at  a  yearly  rental  of  :^i200,  and  pay  November  rent  in  adsance,  i5ioo. 


Entry  : 


Expense 
Cash 

Benj.  Webster,  Nov.  rent 


100 


100 


Mr.  Morgan,  the  proprietor,  has,  in  effect,  withdrawn  ,^^100,  and  with  it 
purchased  the  use  of  a  buildmg  one  montii.  Morgan  lias  parted  with 
one  form  of  value  and  acquired  another.  We  reason  that  that  part  of  the 
business  we  call  "  Cash  "  has  given  value  to  that  part  of  the  business  we 
call  "  Expense."      Debit  the  receiver  and  credit  the  giver. 

Nov.  2.  Pay  Tuska  &  Co.  for  office  furniture  as  follows:  i  roll-top 
desk,  ^50;    I  armchair,  i^8  ;   2  cane-seat  chairs   (</  $2. 


Ent 


rv 


Office  lurnirure 
Cash 

Paid  Tuska  &  Co.  for 
I  roll  top  desk 

1  armchair 

2  cane-seat  chairs  Cfi^  $2 


SO 
8 


62 


Sixty-two  dollars  of  the  original  cash  investment  has  been  reinxested 
in  another  form  of  value ;  namely,  "Office  Furniture."  Ihis  differs  from 
the  value  acquired  in  the  last  transaction  in  that  it  has  a  physical  existence 
and  a  jirobable  longer  life.      It  is  a  kind  of  property  that  should  be  co\ered 


44 


ACCOUNTS    AND   ACCOUNTING    PRACTICE 


by  insurance,  and  is  therefore  set  up  under  a  separate  head.     Which  is  the 
debtor  :      W  hich  the  creditor  :     \\  hy  ? 

Nov.  2.      Buy  of  Walter  Eddy  &  Co.  for  cash  350  A   ^.  ^1.25 


Entry 


Mdse.  Purchases 
Cash 

Paid  Walter  Kddy  &  Co.  for  inv.  ii/i 


437 1 50 


437 ' 50 


Note.  —  See    Trading  Accounts,  page  91,  for  explanation  of  first  item  in  the  above 


entrv. 


Cash  has  given  the  purchase  department  of  the  business  value 
amounting  to  ^^437. 50.     Which  is  the  debtor?     The  creditor?     Why? 

Nov.  9.  Pay  Wm.  Brown,  ^14;  F.  A.  Jones,  ^^13,  salaries  for  the 
week  ending  to-day. 


Entrv  : 


Expense 
Cash 

Paid  Wm.  Ikown,  Si 4;  F.  A.  Jones,  $13, 
salaries  to  date 


27 


Repeat  the  rule.  This  is  a  transfer  of  value  from  Cash  to  Expense. 
Name  the  debtor.  Can  there  be  a  receiver  without  a  giver  of  value  ?  Can 
there  be  a  debtor  without  a   corresponding  creditor  ?     Name  the  creditor. 

Nov.    15.     Sell  Edward  Davis  on  terms  of  30  days'  credit,  200  E  (0.  6o(f. 

Entrv: 


Edward  Davis,  net  30  days 
Mdse.  Sales 

Sale  per  invoice  11/15 


120 


120 


This  is  an  incomplete  transaction.  In  30  days  Edward  Davis  will 
pay  for  these  goods.  What  department  of  the  business  has  given  value? 
Who  received  this  value  ?     Name  the  debtor.      1  he  creditor. 

Each  entry  involves  three  considerations:  (i)  a  statement  of  what  ac- 
tually occurred  in  the  transaction  ;  (2)  the  names  of  the  debtor  and  of  the  cred- 
itor;  (3)  and  the  form  of  the  entry. 


CONTENT  AND  FORM  OF  THE  RECORD  45 

The  transactions  analyzed  (paj^es  42  to  44)  are  reproduced  on  paj;e46  as 
they  should  appear  in  your  journal."  Study  the  form  ot  these  journal  entries. 
Note  the  relative  position  of  debit  and  credit  items,  the  position  of  the  date, 
and  the  indentation  of  the  statement  of  fact,  or  explanation,  underneath. 
This  form  has  a  definite  purpose;  adhere  strictly  to  it  in  making  journal 
entries. 

Many  students  of  accounts  bring  to  a  study  of  the  subject  the 
erroneous  impression  that  the  end  sought  in  any  e.xercise  is  to  "  get  the 
answer,"  without  regard  to  the  means  or  method  employed,  l^nlike  an 
isohittd  problem  in  arithmetic  or  algebra,  an  accounting  problem  has 
underlying  it  a  series  of  business  events;  the  record  must  answer  not 
one  but  manv  questions,  and  any  perfunctory  method  of  attack  can  result 
onlv  in  f;iilurc.  Wni  will  be  rated,  not  only  in  school  bur  in  business  life, 
on  tht*  manner  in  wliich  \ ou  perform  your  work;  because  the  manner  of 
doing  measures  the  value  of  the  thing  done. 

^'our  first  concern  should  be  to  perform  each  task,  first,  in  such  a  way 
as  to  prevent  errors  ;  and,  second,  in  such  a  way  as  to  be  able  to  trace, 
locate,  and  correct  mistakes  if  they  should  occur.  Do  not  do  "rough" 
work.  Never  perform  a  piece  of  work  with  the  idea  predominant  that  it 
must  be  done  over  again  anyhow,  and  it  matters  not  how  the  first  copy 
looks.  Nothing  is  more  pernicious  in  its  influence  than  the  amount  of  care- 
less, scrappy,  thoughtless  work  that  students  do  to  "  get  the  answer." 
The  value  to  you  of  any  task  is  the  task  itself,  not  the  result  to  which  it 
leads.     Proceed,  and  proceed  only,  with  this  attitude  toward  the  subject. 

The  ledger  form  of  the  six  transactions  preceding  this  exercise  is  shown 
on  page  47.'-  Trace  the  transfer  of  these  items  from  the  journal,  page  46, 
to  the  ledger.  Not  all  the  facts  are  carried  to  the  ledger;  only  the  date,  the 
page  of  the  journal,  the  amount,  and  (in  personal  accounts)  the  terms. 
How  many  parts  to  a  date  r  The  year  should  not  be  omitted.  Note  that 
the  vear  and  month  are  not  repeated. 

*  Ihe  fiRures  in  the  narrow  column  at  the  left  of  the  journal  arc  "  post-marks,"  which  you  may 
ignore  for  the  present.     Their  use  will  he  explained  later. 

'  The  figures  in  the  narrow  column  at  the  left  of  the  money  columns  in  the  ledger  arc  "  post- 
s. 


46 


ACCOUNTS    ANi>    .\<.iijlM1.NG    PRACTICE 


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CONTEXT  AND  FORM  Of  lUi:  RECORD 


47 


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48  accounts  and  accol^'tinc  practice 

Questions  Ham;i)  on  Li-dcer  Illustration,  Page  47 

I.  \\  luit  persons  and  departnicnts  of  the  business  are  represented  in 
these  accounts  r  2.  Comparing  this  ledger  with  the  journal  entries  shown 
on  page  46,  on  Nshich  side  ot  the  ledger  do  nou  find  debtor  items?  3.  On 
which  side,  credit  items  :  4.  W  hen  do  we  debit  departments  of  the  busi- 
ness r  5.  \\  hen  do  we  debit  persons  ?  6.  \\  hen  do  we  credit  departments 
of  the  business  :  7.  Persons  :  S.  Kor  what  amount  is  Expense  debited  ? 
9.  For  what  amount  is  Cash  credited  :  10.  For  what  amount  are  all  these 
accounts  debited  r  11.  For  what  amount  are  they  credited  ?  12.  Do  the 
debits  equal  the  credits  ?  13.  Can  you  explain  why  there  is  an  agreement 
of  debits  and  credits:  14.  Ijion  what  ilul  the  relationship  (if  debtor  and 
creditor  rest  in  the  beginning,  or  opening  entry  ? 

13.  bias  the  proprietor's  ownership  increased'  It  is  absolutely  im- 
portant that  vou  understand  the  law  upon  which  this  equation  rests. 
Go  back  to  the  source  of  these  items  in  the  ledger,  study  each  transaction, 
the  journal  entrv  and  the  explanation  accompanying  each,  and  write  down 
the  reason  for  this  equality  of  debits  and  credits.  16.  In  transferring  items 
from  the  journal  to  the  ledger  should  the  journal  show  the  place  in  the 
ledger  to  which   the  transfer  is   made.'      17.    How  could   that   be  shown.' 

18.  Should  the  record  of  each  item  in  the  ledger  show  where  it  came  from  .' 

19.  How  could  that  be  shown  ? 


WHOLESALE    SHOE    BUSINESS 

Exercise  4 

If  you  have  made  a  careful  study  of  the  preceding  pages,  you  should 
have  little  difficulty  in  journalizuig  the  tollowing  transactions.  The  work 
that  follows  covers  a  period  ot  three  months,  No\cmber,  December,  and 
Januarv.  Although  the  narrative  of  transactions  is  continuous  and  should 
comprise  a  continuous  record  when  completed,  for  purposes  of  study  and 
instruction  it  has  been  divided  into  sections,  or  exercises. 

That  the  student  may  concentrate  all  possible  attention  on  the  essen- 
tials and  not  be  burdened  at  present  with  clerical  work,  symbols  have  been 
emploved  to  indicate  the  articles  bought  and  sold.  In  business  offices 
detailed  records  of  purchases  and  sales  are  made  on  typewriting  and  billing 
machines,  in  the  form  of  invoices.  The  origmals  or  copies  of  such  invoices 
are  on  Hie,  and  are  referred  to  in  the  financial  record  by  date  or  number, 
so  that  they  are  always  available  for  reference. 

Opportunity  will  be  given  later  to  write,  handle,  and  study  business 
papers.  It  is  not  deemed  necessary,  however,  at  the  beginning  to  repro- 
duce any  of  the  details  involved.  Nor  is  it  advisable  to  wholly  ignore 
this  quantitative  record.  Accordingly,  the  symbols  A,  B,  C,  etc.,  have 
been  employed  to  represent  the  quantity,  quality,  style,  etc.,  of  the  goods 
bought  and  sold. 

\\  ith  frequent  reference  to  the  foregoing  explanations  and  the  illustra- 
tion on  page  46,  and  with  the  debit  and  credit  rule  always  in  mind,  jour- 
nalize the  following  transactions  in  the  proper  blank  book. 

Nov.  I  (current  year).  P.  A.  Morgan  begins  a  wholesale  shoe  business 
on  this  date  at  (your  address)  with  a  cash  investment  of  $8500. 

1.  Lease  offices  and  business  premises  of  Benjamin  Webster,  agent,  at 
a  yearly  rental  of  i^izoo,  and  pay  November  rent  in  advance,  ^100. 

2.  Pav  Tuska  &  Co.  for  the  following  office  furniture:  i  roll-top  desk, 
$50;    I  armchair,  )^8  ;   2  cane-seat  chairs   («  !^2. 

2.  Buy  of  Walter  Eddy  &:  Co.  for  cash  350  A  (»  i^i.25. 

3.  Buy  of  Fagan  &  Kendrick  for  cash  400  D   (»  75^. 

4.  Pay  Tuska  &:  Co.  for  i  typewriter  )?ioo. 

5.  Sell  A.  J.  Ackley  for  cash  50  A   («  )^i.6o. 

7.   Buy  of  Ely  Abrams  on  terms  of  30  days'  credit  ^(X)  E   @i  40c. 
9.   Sell  Frederick  Austin  on  ttiiiis  of  30  days'  credit,  100  D   (^  75^. 

49 


so 


ACCOUNTS    AND    ACCOUNTING    PRACTICE 


The  iuUowing  is  a  copy  "f  :i  >.h.i.   in\  i.ir«- 


Is'voicK  rRou 

WAL'IKR  ^:n^^■  &  company- 

2417  A 


All  Bills  Subject  to  Sight  Draft  if  not  Paid  at  Maturity 

Si .  l.i.L .. .  M    .   \<)\ .  I.  iv 
Sold  to  1'.  A.  Morjian 

Address     (Your  place) 


Terms:  Strictly  20  Days,  less  z'o 

No  Discount  allowed  after  20  Davs     Shipped  via  M.  K.  \  1  .     I'ackapes    Cases  2 

492    493 


Stock  No.|l-a.r,^j;.v-^.^.    >''«>^"-''    S:.  Eu!  '"-»  Plain  T^     ^^''""i       ''"^'  ^'^""'" 


442^,v,   K.        M        KliCf        M;.l        I'hil 


44^7' 

44275 
44277 


IS 

6 

_6 

43 


\ix  Cf        Hill         Tomorrow 
Vel  "  Lipt 

Hx  Cf         "         Chic 


Cp 


7 
4 


2.62'  4:. 

2.66-  40. 

1 10. 


9.   Sell  S.  E.  Rodgers  for  cash  100  E   @  6o(^. 

9.    Pay  salaries  for  the  week:    Win.  Brown,  ^^14;    F.  A.  Jones,  ^^13. 

9.   Pay  for  postage,  stationery,  and  petties,  $G. 

If  the  proprietor  of  the  business  should  wish  to  know  at  this  point  the 
amount  of  business  done,  what  the  expenses  have  been,  etc.,  we  must 
take  the  facts  recorded  in  the  journal  and  sjroup  them  so  as  to  bring  related 
items,  such  as  sales,  purchases,  expense,  cash,  etc.,  together.  As  explained 
heretofore,  this  grouping  is  done  on  another  form  called  the  "  ledger," 
and  the  transferring  of  entries  from  the  journal  is  called  "  posting." 

Posting 

An  important  function  of  the  book  of  original  entry  is  to  serve  as  a 
postiiiii  mi'dium,  and  con\enience  in  the  work  of  posting  should  determine 
its  form.     Titles  of  accounts  should  be  written  in  a  large,  pl.iin  h.md,  and 


UHOLLbALL    bllOE    BUbl.NLSS  5  I 

should  stand  out  distinctly;  explanations,  m  a  small  hand,  should  be  kept 
away  from  the  folio  column.  The  books  of  ori<;inal  entry  should  be  footed 
before  the  posting  begins.  All  books  should  be  paged  and  the  ledger  care- 
fully indexed.     (See  Ledger  Index,  page  53.) 

A  transaction  is  a  transfer  of  value  from  one  part  or  department  of  the 
business  to  another.  Fhat  which  receives  value  is  a  debtor;  that  which 
gives  value,  a  creditor.  And  since  there  cannot  be  a  giver  without  a 
receiver,  and  vice  versa,  a  record  of  each  transaction  comprises  at  least  two 
ite'msy  a  debit  item  and  a  credit  item.  And  since  debit  items  must  occupy 
the  left  page  and  credit  items  the  right  page  of  the  ledger,  you  must  know 
positively  before  you  post  an  item  whether  it  is  a  debtor  or  a  creditor. 
There  are  no  debit  and  credit  positions  in  the  book  of  original  entry,  ^'our 
only  reliable  guide  is  the  rule  :  That  person  or  department  of  the  business  that 
has  received  or  cost  value  is  a  debtor;  that  person  or  department  of  the  busi- 
ness that  has  given  or  produced  value  is  a  creditor,  "^'ou  must  learn,  under- 
stand, and  rigidly  observe  this  rule  in  posting  each  item. 

Posting  an  item  comprises  two  distinct  operations.  First,  transferring 
the  required  information,  usually  only  the  date  and  the  amount,  from  the 
journal  to  the  ledger  ;  second,  indicating  in  the  ledger  the  page  of  the  journal 
from  which,  and  in  the  journal  the  page  of  the  ledger  to  -which,  the  transfer 
is  made.  1  he  student  should  concentrate  all  possible  attention  upon  the 
matter  of  post-marking,  and  thus  checking,  an  item  at  the  time  the  item  is 
posted.  Omissions  and  repetitions  can  be  prevented  in  no  other  way; 
and,  because  the  indifferent  student  will  neglect  the  post-mark,  it  is,  for  the 
beginner,  one  of  the  most  important  parts  of  the  operation. 

In  posting  the  accounts  of  customers  and  trade  creditors,  indicate  in  the 
NNide  column  of  the  ledger  the  terms  of  each  sale  or  purchase,  as  the  case 
may  be.  In  posting  closing  entries  write  in  the  wide  column  of  the  Icdtier 
the  name  of  the  account  from  which  or  to  which  the  transfer  is  niadi . 

If  you  have  studied  the  directions  for  posting  \'ou  may  now  proceed  to 
post  the  journal  entries,  Nov.  i  to  9.  Transfer  each  debit  item,  the  date 
:ind  the  amount,  to  the  left  side  of  the  ledger  account  indicated  m  the 
journal  entry,  and  each  credit  item  to  the  right  side.  \\  hen  you  post  a 
charge  to  a  customer's  account,  or  a  credit  to  a  trade  creditor's  account, 
remember  to  indicate  the  terms  of  the  sale  or  the  purchase,  as  the  case 
may  be,  in  the  wide  column  of  the  ledger.  After  you  post  an  item,  remem- 
ber to  enter  the  journal  page  in  the  ledger  folio  column  and  the  ledger  page 
m  the  journal  folio  column,  ^'ou  are  less  hkily  to  make  mistakes  if  you 
make  the  posting  of  items  of  one  account  and  to  one  side  of  the  ledger 
continuous,  although  items  do  not  occur  in  the  journal  in  this  order;  other- 
wise your  destination  in  the  ledger  changes  with  e;ich  item,  which  is  more 
or  less  confusing. 


52 


ACCOUNTS    AND    AcuUUNTING    PRACTICE 


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WHOLESALK    SHOE    BUSINESS 


53 


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Ledger  Index 

A  kdiicr  index  showing  the  accounts  you  will  operate  in  connection  with 
the  husiness  of  P.  A.  Morji;an,  the  ledger  pages  on  which  these  accounts 
should  be  opened,  and  the  number  of  lines  to  give  each  account  is  shown, 
pages  52  and  53.  The  number  m  parenthesis  after  the  name  of  the  ac- 
count indicates  the  number  of  lines'  space  required,  but  these  numbers 
are  not  a  part  of  the  index.  Copy  this  index  on  your  index  blank,  and 
open  the  accounts  accordingly.  Number  the  pages  of  your  journal  and 
ledger. 


THE   TRIAL   BALANCE 

Purpose  of  the  Trial  Balance 

( )li\  iouslv,  if  rccei\ers  of  vriliic  in  every  case  have  been  made  debtors 
and  givers  of  value,  creditors,  since  debtor  items  should  be  entered  on  the 
left  and  creditor  items  on  the  right  side,  the  two  sides  of  the  ledger  should 
be  ecjual.  If  mistakes  have  been  made  to  destroy  this  equilibrium,  they 
should  be  located  and  corrected  before  proceeding  further  with  the  work. 
Ir  is  the  practice  of  bookkeepers  to  test  the  accuracy  of  theii'  work  imme- 
diately after  the  posting  is  completed  by  totaling  the  two  sides  of  the  ledger. 
This  test  is  called  a  "  trial  balance." 

I  he  purpose  of  the  trial  balance  is  to  test  the  accuracy  of  the  book- 
keeper's work.  It  does  not  disclose  all  errors.  If  you  had  made  a  mistake 
in  Frederick  Austin's  invoice  of  the  9th,  charging  him  ^^65  instead  of  ^75, 
the  mistake  would  aft'ect  two  accounts;  namely,  Frederick  Austin  and 
Merchandise  Sales,  and  would  not  disturb  the  eijuation.  If  you  had  posted  to 
the  wrong  account,  but  not  to  the  wrong  side  of  the  ledger,  the  footings 
of  your  trial  balance  would  still  be  equal.  However,  it  does  disclose 
errors  in  applying  the  law  of  debit  and  credit  underlying  each  transaction, 
errors  of  posting  to  the  w  rong  side  of  tiie  ledger,  errors  of  omission  and 
repetition,  errors  in  copying,  adding,  and  subtracting,  after  the  original 
entry  is  made,  etc. 

You  may  now  proceed  to  make  a  trial  balance  of  your  ledger  in  ac- 
cordance with  the  following  instructions. 

Procedure 

With  a  sharp  pencil,  in  small  legible  figures,  write  the  footing,  or  footings, 
of  each  account  in  your  ledger  that  has  more  than  one  item.  1  hese  pencil 
footings  should  be  w  ritten  close  under  the  blue  line  on  which  the  last  item 
was  entered  so  the\'  will  not  interfere  with  subsequent  entries.  1  he  fiist 
addition  should  be  from  the  top  down  ;  then,  if  it  becomes  necessary  to  re- 
view the  work,  add  from  the  bottom  up. 

After  the  lootings  of  all  accounts  have  been  carefully  stated  write  on  a 
sheet  of  journal  paper  and  in  the  order  in  which  they  occur  111  the  ledger, 
the  names  of  all  accounts  the  footings  of  which  are  unecjual.  .After  each 
account  enter  its  ledger  footings  debit  footing  in  the  left,  credit  footing 
in  the  right  column.  Indicate  the  ledger  page  of  each  account  in  the  folio 
column  at  the  left,  and  write  the  caption  Tuill.  B.II..ISCI:,  together  with 
the  date  on  which  it  is  taken,  at  the  top  of  the  page.      State  the  footings 

54 


THE    TRIAL    BALANCE  55 

of  the  trial  balance  in  small  pencil  fif!;ures.  If  the  footings  are  equal,  single 
and  double  rule  the  columns,  and  enter  the  totals  in  ink.  If  the  totals  of 
the  trial  balance  are  unequal,  a  mistake  has  1h(.ii  math-,  and  nou  should 
proceed  in  a  systematic  manner  to  locate  it  as  suggested  below. 

When  the  Trial  Balance  shows  a  Difiference 

In  the  matter  of  errors  every  precaution  should  be  taken  to  prevent 
them.  It  often  takes  many  hours  to  locate  and  correct  mistakes  that  a 
little  concentration  and  attention  would  have  prevented.  But  if  a  mis- 
take does  occur,  you  must  review  your  work  with  systematic  care  to  Hnd  it. 
No  dcHnite  rules  can  be  given  for  this  procedure.  The  following  general 
suggestions,  however,  mav  be  of  service. 

To  find  Errors  in  Trial  Balances 

In  the  first  place,  be  sure  that  you  understand  :vhy  there  should  be 
an  equality  of  debits  and  credits.  If  you  do  not  understand  tiiis,  vou  are 
groping  in  the  dark;    no  cut-and-dried  formula  can  help  you. 

Second,  make  sure  that  your  additions  and  subtractions  are  correct. 
Few  persons  can  add  and  subtract  without  making  mistakes.  Correct 
addition  begins  with  writing  the  numbers  to  be  added.  If  your  figures  are 
illegible,  alterations  frequent,  and  columns  zigzag,  there  is  no  help  for  you 
in  this  work  until  you  correct  these  faults.  If  you  neglect  to  state  the  foot- 
ings and  differences  the  first  time  over  your  work,  as  you  have  been  in- 
structed to  do,  you  have  nothing  with  which  to  compare  the  results  the 
second  time  over. 

ihird,  mistakes  commonly  occur  in  copying  numbers.  Figures  are 
transposed  or  transplaced  ;  89  is  called  98,  or  75^  is  written  as  ,^75,  etc. 
Transposition  of  figures  will  lead  to  a  difference  in  your  trial  balance  which 
is  exactly  divisible  by  9.  Transplacement  will  lead  to  a  difference  exactlv 
divisible  by  99.  But  it  is  doubtful  if  this  method  of  locating  an  error  has 
much  practical  value. 

Fourth,  if  you  have  posted  an  item  to  the  wrong  side  of  the  ledger,  the 
mistake  will  result  in  a  difference  of  twice  the  amount  so  posted. 

I'ltth,  if  you  have  overlooked  an  item,  either  in  posting  or  transferring 
accounts  to  the  trial  balance  sheet,  the  mistake  will  result  in  a  difference 
in  the  trial  balance  of  the  amount  overlooked. 

I  he  surest  way  of  locating  an  error,  after  you  have  made  certain  that 
the  mistake  is  not  in  addition  or  subtraction,  is  to  check  back  your  posting. 
W  ith  a  sharp  pencil  check  (V)  lightly  each  item  in  the  ledger  and  each  corre- 
sponding item  in  the  journal,  placing  the  check  mark  close  to  the  double  lines  of 
the  money  column.  Do  not  jump  from  one  side  of  the  ledger  to  the  other; 
check  all  the  debit  items,  then  all  the  credit  items.  C'aielully  scrutinize 
each  item  to  see  if  you  have  transferrt d   the  exact   amount  to  its  proper 


56 


ACCOUNTS   AND   ACCOUNTING   PRACTICE 


^s^-'^i-j^gZ,^  X^^TPE-^^ce^^^^-'C-d-^,  /(ytr. 


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place  in  the  ledger.     The  ledger,  In  so  far  as  amounts  and  their  relative 
position  are  concerned,  is  a  copy  of  the  journal. 

Note.  —  Some  accountants  prcftr  to  use  the  dot  (.)  as  a  check  mark.  While  it 
is  doubtful  whether  this  can  be  made  as  distinct  and  with  as  preat  speed  as  the  other 
form,  it  will  pive  the  pape  a  less  rapped  appearance.  In  case  rechecking  becomes  nec- 
essnrv,  both  forms  may  be  used  conveniently. 

A  Trial  Balance  of  Concrete  Results 

Accounts  usually  comprise  both  debit  and  credit  items,  representing 
value  received  and  value  given.  \  he  Cash  account  in  e.xercise  4  has  re- 
ceived JS8640  and  given  ^1032.50.  These  two  facts  are  important,  but  more 
important  is  the  conclusion  to  which  they  lead;  namely,  the  amount  of 
cash  we  should  have  on  hand,  ^^7607. 50.  If  a  personal  account  shows  a 
debit  of  ^^4430  and  a  credit  of  i^iio,  the  essential  thing  with  reference  to 
this  account  is  the  excess  of  the  debit  over  the  credit,  ^^4320.  Taking  the 
difference  betw'een  the  footings  of  an  account,  and  using  that  difference 
instead  of  the  footings  in  the  trial  balance,  substracts  the  same  amount 
from  both  sides  and  does  not  disturb  the  equation.  And  a  trial  balance 
of  dirtercnces  —  concrete  results  —  serves  the  double  purpose  of  testing  the 
accuracy  of  the  bookkeeper's  work  and  expressing  concretely  the  conclu- 
sions to  which  the  various  accounts  lead. 

You  may  now  make  a  trial  balance  of  concrete  results. 

Procedure 

State-  m  thf  Kdgcr  tlu-  difference  if  an\'  between  the  footings  of  each 
account  in  the  wide  column  on  the  Icjt  side  in  pencil.     Transfer  all  accounts 


WHOLESALE    SHOE    BUSINESS  57 

to  a  sheet  of  journal  paper,  as  directed  above,  entering  all  debit  balances  in 
the  left,  and  all  credit  balances  in  the  rii!;ht  coluniii.  Foot  the  trial  balance 
and  state  the  footings  in  small  pencil  Hgiires.  If  the  footings  are  equal, 
ink  in  the  amounts  and  rule.  Write  above  this  list  of  items  the  heading: 
Trial  Balance,  November  g,  iq —   (current  year),  as  shown  on  page  56. 

WHOLESALE   SHOE  BUSINESS   (Continued) 

Exercise  5 

If  you  have  tested  the  accuracy  of  your  ledger  by  means  of  a  trial 
balance  and  found  the  same  to  be  correct,  proceed  to  journalize  the  follow- 
ing transactions.  This  is  a  continuation  of  rhc  business  of  V.  A.  Morgan. 
\'our  entries  should  follow  tliose  ol  Nov.  9,  without  leavmg  a  blank  space. 

Nov.  II,  19 — .     Sell  L.  L.  Vance,  terms  10  days,  100  A   @  ^^1.55. 

II.   Pay  Bank  Brothers  for  office  stationery,  $^0. 

11.  Buy  of  the  New  York  Store  for  cash  150  B   @  $2. 

12.  Sell  A.  C.  Fontaine  for  cash  100  D   @  98^. 

14.  Buy  of  Holbrook  &  Hayward,  terms  30  days,  150  C  @  ^2.50. 

15.  Sell  John  Bennett  for  cash  100  A   @  $1.60. 

15.  Sell  Edward  Davis,  terms  30  days,  200  E   @  60^. 

16.  Buy  of  Walter  Eddy  &  Co.,  terms  30  days,  500  A   @  $1.25. 
16.   Pay  Wm.  Brown,  ^14;    F.  A.  Jones,  ^13,  salaries  for  the  week. 

16.  P.  A.  Morgan  drew  for  personal  use,  ':^\o.  (Charge  Morgan's 
Private  account.) 

19.  Sell  Isidore  Isaacs,  terms  10  days,  50  C  @  $3. 

20.  Receive  of  L.  L.  Vance  for  invoice  of  the  i  irh  inst.  ^^155. 
20.   Pay  R.  H.  Macy  &  Co.  for  office  furniture  : 

I  filing  cabinet  $50 

I  high  desk  lO 

I  stool  3 

Post  and  take  a  trial  balance  of  differences,  dated  Nov.  20,  which  should 
include  all  items  from  Nov.  i. 


LABOR-SAVING    BOOKS 
Sales  Book 

We  shall  at  this  time  adopt  a  form  of  recording  some  of  the  trans- 
actions in  the  journal  so  as  to  save  labor,  both  in  recording  and  posting. 
Thus  far  each  entry  has  involved  posting  at  least  two  items;  and  since  the 
purpose  of  posting  is  to  group  items  in  the  ledger,  we  may  save  labor  by 
grouping  related  items  in  the  journal  and  posting  the  totals. 

To  illustrate,  sales  transactions  recur  again  and  again,  and  the  credit 
item  involved  in  a  sale  is  always  the  same;  namely.  Merchandise  Sales. 
And  since  these  items  are  carried  to  the  same  place  in  the  ledger  and  there 
added,  \\e  shall  save  many  entries  in  the  ledger  by  grouping  these  items  in 
the  journal  and  carrying  over  the  total  when  we  post.  Study  the  following 
form : 


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S8 


WIIOLESALK    SHOE    BUSINESS  5O 

There  are  eleven  transactions  from  Nov.  21  to  30  involving  a 
credit  to  Merchandise  Sales.  If  we  journalize  these  transactions  as  you 
have  been  doing,  we  siiall  have  to  post  22  items.  By  using  the  foregoing 
form  you  need  post  only  12  items,  a  saving  of  nearly  50  per  cent  of  time 
and  work. 

Turn  to  page  11  of  the  journal,  write  the  heading  Mt-rchandise  Sales, 
and  enter  all  sales  under  this  heading.  Compare  this  ruling  with  the  form 
on  which  entries  were  made  in  the  preceding  exercises.  L  se  the  two 
columns  on  the  left  for  the  date,  and  the  adjoining  column  for  the  ledger 
folio.     Note  that  the  month  and  year  are  written  only  once. 

WHOLESALE   SHOE   BUSINESS   (Continued) 

E.XERCISE    6 

Transactions  in  the  business  of  P.  A.  Morgan  for  the  remaining  days  of 
November  follow. 

Nov.  21,  19 — .     Sell  A.  J.  Ackley,  terms  2  ^10  n  ^30,  200  A   ^».  $1.60. 

N\)Tii. — "2/10  n  30  "  means  that  the  term  of  credit  is  30  days,  but  that  a  discount 
of  iVc  will  be  allowed  for  payment  in  10  days. 

Attention  is  called  to  the  wide  variation  in  the  terms  on  which  goods 
are  sold  in  these  exercises.  1  his  plan,  although  at  variance  with  business 
custom,  is  necessary  in  order  to  properly  grade  the  work  so  that  the  stu- 
dent will  not  encounter  difficult  problems  at  the  beginning. 

21.  Sell  Richard  Grainger,  net  cash,  200  E   @  60  0. 

22.  Buy  of  Ely  Abrams,  i|/io  n   30,  500  E   @  40  ^. 

22.  Sell  Rulif  \'.  Lawrence,  net  30,  100  C   (n  $}. 

23.  Buy  of  French  Brothers,  2    10  n   30,  300  C   @  $2.50. 
23.  Sell  W'ickwire  Brothers,  3    10  n/ 30,  200  A   @  $1.60. 
23.  Sell  R.  S.  Kingsley,  n    10,  50  B    («  ^2.50. 

23.   Pay  Wm.  Brown,  y^i4;   F.  A.  Jones,  $1^,,  salaries  for  the  week. 
23.   Pay  P.  A.  Morgan,  personal  drawings,  $2^\   petty  expenses,  $'\. 
25.   Pay  J.  Dodd   for  signboard  "  P.  A.   MORGAN,"  $1^.      (Charge 
Office  Furniture.) 

25.  Sell  John  E.  Steen,  n/60,  150  E   @  62  ^. 

26.  Buy  of  David  Dunn,  2/10,  200  B   ^  $1.90. 

28.  Sell  Isidore  Isaacs,  terms  30-day  note,  84  C   (■■  ^^3. 

Note.  —  Make  no  entry  for  the  receipt  of  this  note  until  there  is  a  direct  statement 
that  the  note  has  been  received. 

28.  Sell  John  Bennett,  2/10  n  '30,  100  A  (a.  )5i.25. 
Sell  A.  C  Fontaine,  net  10  days,  100  D  (<>  $\. 
Sell  S.  E.  Rodgers,  net  10  days,  75  E   C"  (yo  <j:. 


6o 


ACCOUNTS    AND    ACCOUNTING    PRACTICE 


29.   Receive  of  Isidore  Isaacs  cash  i?i50  for  invoice  of  Nov.  19  and  his 
30-day  note  dated  Nov.  2H,  $i>,2,  in  settlement  of  invoice  of  that  date. 

Note.  I  lire  we  have  a  new  species  of  value,  called  "notes  receivable."  Debit 
Notes  Receivabtf  when  you  receive  the  negotiable  promises  of  others,  which  include  the  notes 
and  accepted  drafts  of  others,  in  3'our  favor. 

The  entry  for  the  foregoing  is  as  follows: 


29 
C\ish 

Notes  Receivable 
Isidore  Isaacs 

Received  of  I.  Isaacs  cash  for  inv.  11  19  j?l50 
and  his  loday  note  of  Nov.  28  for  invoice  of 
thar  date,  $>z^z. 


252 


402 


29.  Give   Ruhr  \  .    Lawrence  credit   for  merchandise  returned,   25  C 

@  $!>. 

What  entry  did  you  make  when  you  sold  these  goods  to  Lawrence 
on  the  22d  inst.  ?  Smce  the  conditions  are  now  reversed,  the  entrv  must 
be  reversed.      Debit  Merchandise  Sales  and  credit  Rulif  /'.  Lazvrence. 

29.  Sell  Clayton  Ensign,  3  '10,  150  H    (<;  /2.60. 

30.  Make  the  following  payments:  Mosler  Safe  Co.  for  ofHce  safe, 
^5250;  Wm.  Brown,  ^^14;  F.  A.  Jones,  $13,  salaries  for  the  week;  petty 
expenses,  postage,  etc.,  ^6;    P.  A.  Morgan,  personal  drawings,  ^35. 

Post  all  entries  and  take  a  trial  balance  of  differences  dated  Nov. 
30,  19 — .  Foot  and  rule  the  items  comprising  the  group  of  sales  trans- 
actions, following  the  form  given  on  page  58.  Name  the  debtors  in  this 
group  of  items.  Name  the  creditor.  \\  hat  is  the  class  name  for  those 
to  whom  we  sell  goods  .'  Remember,  we  have  set  aside  this  group  of  items 
to  save  labor  in  posting.  Post  the  total  only  to  the  credit  of  Merchandise 
Sales,  using  the  date  of  the  last  transaction  in  the  series.  Read  again  the 
directions  for  posting  and  taking  a  trial  balance  and  follow  them  implicitlv. 
This  trial  balance  should  include  all  items  in  November. 

Rrvirw  QuFSTiONS,  E.xfrcisfs  4,  5,  and  6 

I.  What  IS  a  business  transaction.'  2.  Show  how  each  transaction 
gives  rise  to  the  relationship  of  debtor  and  creditor.  3.  Does  that  rela- 
tionship exist  in  the  beginning  of  a  business  before  there  have  been  any 
transactions  ?  Explain.  4.  Show  why  there  cannot  be  a  debtor  without 
a  corresponding  creditor.  5.  Explain  the  meaning  of  the  terms  debtor  and 
creditor  as  they  are  employed  in  account  keeping.     6.   State   the   rule  to 


WHOLESALE    SHOE    BUSINESS  6 1 

determine  the  debtor  and  creditor  elements  in  a  ^iven  transaction.  7.  In 
what  chiss  of  transactions  are  persons  involved  in  the  entry  ?  8.  In  wiiat 
class  are  persons  not  involved  r  9.  Show  why  we  do  not  bring  persons 
into  all  entries.  10.  \\  liat  considerations  determine  the  content  and  form 
t)f  an  ori<i,mal  entry  ?  (An  original  entry  is  the  Hrst,  or  journal,  entry.) 
II.  What  is  an  account  ?  12.  W'liat  is  posting  ?  13.  What  plan  would 
you  follow  in  openmg  accounts  m  the  ledger.'  14.  What  accounts  are 
involved  in  posting  entries  of  sales  transactions.'  15.  When  the  sales 
entries  are  grouped  m  the  journal,  what  advantage  in  postmg  results  from 
having  customers'  accounts  together  in  the  ledger  ?  16.  If  you  found  it  con- 
venient to  group  other  classes  of  items  in  the  journal,  should  the  accounts 
to  which  such  items  belong  be  found  together  m  the  ledger."  17.  What 
other  class  of  items  might  be  conveniently  grouped  in  the  journal  as  we 
grouped  the  sales  items.'  18.  What  is  the  purpose  of  the  trial  balance.^ 
19.  Give  in  detail  the  steps  to  be  taken  in  posting  and  securing  a  trial 
balance.  20.  What  is  a  trial  balance  of  concrete  results  .^  21.  How  should 
vou  proceed  to  locate  an  error  if  your  trial  balance  shows  a  difference  .' 


LABOR  SAVING    BOOKS     Continued) 
Purchase  Book 

Ikforc  procctdinfi  with  the  transactions  of  the  following  month  (Decem- 
ber) we  shall  consider  several  new  points. 

Turn  to  page  13  of  the  journal  and  write  the  caption  Merchandise 
Purchases  at  the  top  of  the  page.  If  you  saved  labor  by  grouping  sales 
transactions,  you  can  also  save  labor  by  grouping  purchases.  1  his  form  is 
tile  one  employed  tor  sales  the  last  ten  days  of  November.  'See  form, 
page  66.)  You  must  reverse  the  order,  however,  when  you  post.  The  persons 
from  whom  you  bu\  goods  are  creditors  ;  Merchandise  Purchases  is  a  debtor. 

Merchandise  Discount 

Nov.  21  we  sold  A.  J.  Ackley  a  bill  of  goods  on  terms  of  2', 
discount  for  payment  in  10  days.  \\  hat  entry  was  made  oi  the  sale  to 
Ackley:  He  now  takes  the  2'',  discount  and  remits  us  $313.60  in  full 
settlement.  We  must  credit  him  for  the  full  amount,  ^^320,  but  we  can 
debit  Cash  for  only  the  amount  received,  $313.60.  The  difference  ($6.40) 
that  must  be  charged  back  to  some  account  might  be  regarded  as  an  off- 
set to  Merchandise  Sales,  a  means  of  getting  money  to  carry  on  the  busi- 
ness, or  an  expense  of  collecting  customers'  accounts.  At  present,  howe\er, 
you  may  charge  Merchandise  Discount  for  the  discount  taken  by  A.  |. 
Acklew     Study  the  following  transactions  : 

Jan.  24,  19 — .  Receive  of  Boyd  &:  Benton  for  invoice  of  the  14th  inst. 
$500,  less  2%.     The  entry  for  this  transaction  should  be 


24 
Cash 

Milse.  Discount 
Bo\d  &:  i^enton 

In   stttltment  of  their    invoice  of  i    14,   less 
2%. 


490 
10 


;oo 


Jan.  27.  Pay  Harding  &:  Hill  for  inv.  of  the  lyrh  inst.,  $360,  less  i  ;  '' 

Entrv  : 

•27 


Harding  &:  Hill 
Cash 
Mdse.  Discount 


360 


for  invoice  of  I    17,  less  l\ 


-  I  \  or 


354    ^>o 
5    40 


62 


WHOLESALE    SHOE    BUSINESS  63 

A  very  simple  rule  to  follow  is  to  debit  Merchandise  Discount  tor  sales 
discount  and  credit  the  same  for  purchase  discount  when  either  is  taken. 
For  a  fuller  discussion  of  this  topic,  see  page  158. 

WHOLESALE    SHOE   BUSINESS    (Continued) 

Exercise  7 

Transactions  in  the  business  of  1*.  A.  Morgan  for  the  month  of  Decem- 
ber follow.  With  sales  and  purchases  grouped  under  separate  heads,  con- 
tinue the  jouiiKil  (.ntries. 

December  i,  ig 

Receive  of  A.  J.  Ackley  for  invoice  of  the  21st   ult.,  ^320,  less  2%. 
Make   the   following   payments : 

J.    E.    Dodge,    agent,    tor    Hre   msurance  policy,  ^i  ^oo  valuation   (<; 

1%,  ^15- 

The  Northcott  Truck  Co.,  freight  and  drayage  for  November,  ^^23. 50. 
Benjamin  Webster,  December  rent,  ^100. 
Buy  of  Walter  F.ddy  &:  Co.,  terms  cash  less  i  (',[,  500  A   Qi  ^1.25. 

NoTK.  —  thereafter  rcjiard  all  piircliascs  and  sales  of  merchandise  as  e.xecutorv  trans- 
actions; tfiat  is,  the  sale  or  purchase  constitutes  one  transaction,  the  settlement  another. 
In  a  wholesale  or  manufacturing  business,  information  respecting  individual  customers 
and  creditors  justifies  the  labor  of  opening  accounts  with  them,  whether  or  not  cash  is 
paid  in  settlement.  liesides,  strictly  cash  transactions  in  the  wholesale  trade  rarelv  occur; 
that  is,  customers  do  not  come  to  the  place  of  business  with  the  money  and  carry  awa)- 
the  goods.  The  entry  Cash  to  Merchandise  is  justified  only  when  there  is  a  mutual  simul- 
taneous exchange  of  goods  and  money.  In  business,  "terms  cash"  means  anywhere  from 
one  to  thirty  days.  Do  not  enter  cash  receipts  or  payments  unless  there  is  a  direct  state- 
ment that  cash  is  received  or  paid. 

Dec.  2 

Make  the  following  sales  : 

Rulif  \'.  Lawrence,  n  To,  10  doz.  C   @  ^36. 
Clayton  Ensign,  5    10  n  60, 
5  doz.  B   f/,  ^36. 
5  doz.  C    (a  $\2. 
Receive  the  following  checks  : 

R.  S.  Kingsley,  invoice  11    23,  ^125. 
Wickwire  Brothers,  invoice  11    23,  less  3*^,  $310.40. 
(Combine  these  remittances  in  one  Cash  entry.) 
Make  the  following  payments  : 

Ely  Abrams,  invoice  11    22,  less  1-4%. 
French  Brothers,  invoice  11    23,  less  2%. 
(Consult  their  accounts  for  the  amounts  and  combme  the  pa\'mcnts 
in  one  Cash  entry.) 


64  ACCOUNTS    AND   ACCOUNTING    PRACTICE 

Dec.  3 

Make  the  following  payments: 

\\  ni.   Brown  ^^14,   V.  A.  Jones  ^^13,  salaries. 

Postage,  car  fares,  and  petties,  }?i2. 

Peckham  &:  Co.  for  10   1  .  egg  coal    C"  $5. 50. 

P.  A.  Morgan,  personal  drawings,  ^^35.     (One  Cash  entry.) 

Dec.  5 
Buy  of  Frencli  Brothers,  terms  cash,  less  3*^,  20  doz.  C  ^/  $30. 
Pay  the  Northcott  Truck  Co.,  freight  and  drayage,  ^8. 

Dec.  6 

Pay  David  Dunn  for  invoice  of  the  26th  ult.,  less  2%.  (Consult  his 
account  for  the  amount.) 

Buy  of  Kagan  fie  Kendnck,  terms  cash,  less  i  ^,  10  doz.  D  ^  $g. 

Sell  Henry  K.  Goodrich  for  delivery  one  half  at  date,  one  half  Dec.  20, 
terms  cash  on  delivery,  20  doz.  E   Qi  $y.20. 

Pay  1  uska  &:  Co.  for  i  duplicating  machine,  $>,o,  and  supplies,  ^7. 
(Charge  the  machine  to  Ojfict'  Furniturr,  the  supplies  to  Expense.) 

Dec.  7 

Make    the    following    payments : 

Ely  Ahrams,  in\oice  Nov.  7,  $200. 

\Vm.  Brown,  ^14;   F.  A.  Jones,  i5i3,  salaries. 

Stationery  and  petties,  $13.55. 

P.  A.  Morgan,  personal  drawings,  $25. 
Sell  Ruhf  \  .  Lawrence,  n    10,  5  doz.  D   (o  $15. 

Dec.  9 

Return  merchandise  to  Holbrook  &  Hayward,  25  C  @  $2.50.  (Credit 
Merchandise  Purchases.) 

Receive  checks  of  the  following  customers  : 
Frederick  Austin,  invoice  11/9,  ^^75. 
S.  E.  Rodgers,  invoice  11/28,  $45. 
A.  C.  Fontaine,  invoice  11/28,  i^ioo. 
John  Bennett,  invoice  11/28,  less  2^\,  ^^122.50. 
Henry  K.  Goodrich,  invoice  12  6,  ^^72. 
Receive  of  Clayton  Ensign  to   apply  on  invoice  of  Nov.  29   the  pa- 
pers shown  on  next  page. 

Read  these  documents  carefully.  ( )ne  is  a  promise  to  pay  mone\'  in 
30  days;  the  other,  a  communication  addressed  to  The  Merchants  Bank, 
asking  that  institution  to  pay  money  at  once.  One  is  called  a  "  promissory 
note  "  ;  the  other,  a  '*  check."  What  names  do  wc  give  to  these  things 
in  recording  their  receipt  on  our  books  .' 


WHOLESALE    SHOE    BUSINESS  65 


Cincinnati,  Ohio,    >   ^.-^l\>- /.■- ,   j-  ^ ^  19 


after  date  for  value  reccivcd-l:^!^ promise  to  pay  to 


i^p, 


'^yf^^r  f^^^^  vZ^^^.  c-  -      '      Dollars   S  /  f"-  '" 


at  the  Merchants  Bank  of  Cincinnati. 

N>^    l//^T~         Due  r^i?^y.  T-f,  19lr=L         /-    .  ^, 


/ 


The  Merchants  Bank 

Nn    /v-T"^  <? Cincinnati,  Ohio,    ^71}^^    (^     IQ  — 


Dollars 


y/9-zU:t^ytJ^^:^r?-^y^^^^^^. 


..rd^^^f^-^y^y 


Allow  Ensign  3 '^  discount  (see  sale  of  Nov.  29)  on  the  amount  of  the 
debt  which  his  cash  remittance  discharges.  You  should  not  compute  dis- 
count on  the  amount  remitted;  i?200  is  97%  of  the  debt  canceled  by  this 
remittance.  Is  this  sales  discount  or  purchase  discount  '  Should  Mcr- 
chandise  Discount  be  debited  or  credited  ? 

Note.  —  Some  business  men,  in  order  to  save  the  extra  labor  involved  in  the  longer 
calculation,  would  compute  this  discount  on  the  amount  of  the  remittance,  :f>zoo;  but  Hn- 
sign,  m  this  transaction,  has  a  right  to  demand  an  allowance  of  )^6. i<;,  and  his  bookkeeper 
could  be  no  more  profitably  employed  than  in  making  such  calculations.  And  while  con- 
ditions might  arise  to  justify  the  shorter  method  of  computation,  the  one  stated  above  is 
employed  in  this  book. 

Issue  the  following  checks  : 

Walter  Eddy  &:  Co.,  invoice  12^1,  ^^625,  less  I  %. 

French  Brothers,  invoice  12^5,  J^6oo,  less  3%. 

Fagan  &:  Kendrick,  invoice  12  '6,  }^90,  less  i^^;. 
Is  the  discount  involved  in  these  transactions  sales  discount  or  pur- 


66 


ACCOUNTS    AND    ACCOUNTING    PRACTICE 


chase  discount  ?  State  the  rule  for  ckhitin^  ;iiul  crt-clirlnii  Merchandise 
Discount.  Show  how  we  c;iii  save  time  and  lalnn  hv  combining  these 
payments  in  one  enri\.  Ha\e  you  been  }iroupm<i  all  cash  payments  r 
Where?  What  is  eitchuil  tor  cash  paid  "  W  hcrt  have  vou  j^rouped  cash 
receipts?  Are  transactions  invoUinu;  the  receipt  and  pavment  ot  cash 
numerous  ?  Would  any  adNanraue  result  from  proupin^  cash  pa\ments 
in  the  journal?  Kxplain.  Would  an\'  ad\antage  result  from  <:roupinj; 
cash  receipts  in  the  journal  ? 

i'ost  ail  the  entries  Dec.  i  to  9,  inclusive,  and  take  a  trial  balance. 
Foot  and  rule  the  group  of  sales  items  as  you  did  Nov.  30.  Foot  and  rule 
the  group  of  purchase  items  as  follows  : 


^t^iL^-  ,'^/^  .1  .<-  /?  ^  .   '  . 


c^-,  '/<>, 


c 


-     /    /^'^r-^^ 


^^^  "^  fe 


/ 


■j^ 


^yi^ 


A 


c  o* 


-^ 


1  his  form  is  given  tc^r  your  guidance  only.  Do  not  copy  it.  Since 
you  have  been  accustomed  to  the  form  of  journal  entry  in  which  debit 
items  are  to  the  left  and  credit  items  to  the  right,  you  should  exercise  the 
utmost  care  in  posting  purchases.  In  this  form  the  debit  item  stands  to 
the  right,  the  credit  items  to  the  left.  Post  your  group  of  purchases  in 
accordance  with  the  above  form. 


LABOR  SAVING    BOOKS    (Continued) 

Cash  Book 

In  rec()iclin<!;  the  transactions  that  follow  continiR-  ro  ^roiip  the  sales  and 
tilt-  purchase  transactions  in  the  spaces  allotted.  Alrhouj:;h  this  narrative 
of  transactions  has  been  presented  in  separate  exercises,  it  comprises  a 
series  of  unbroken  business  events,  and  your  record  should  be  contiiuK)us. 
Do  not  leave  blank  spaces  anywhere  between  vour  entries. 

Since  the  plan  of  grouping  sales  and  purchases  in  the  journal  has  marked 
advantages,  let  us  continue  the  grouping  as  long  as  it  will  effect  a  saving 
of  labor  and  not  impair  the  value  of  the  record.  Set  aside  three  pages 
for  cash  transactions  (pages  14,  15,  and  16  of  the  journal).  At  the  top 
of  page  14  enter  all  cash  receipts;  on  the  lower  half  of  page  14,  all  cash 
payments.  ^  ou  have  been  doing  this  in  constructing  vour  Cash  account 
in  the  ledger;  but  the  journal  record  must  show  under  cash  received 
(i)  the  date,  (2)  the  creditor  account,  (3)  from  whom  and  for  what  received, 
and  (4)  the  amount.  And  the  record  of  cash  payments  must  show  (i)  the 
date,  (2)  the  debtor  account,  (3)  to  whom  and  for  what  paid,  and  (4)  the 
amount.  Above  the  first  group  of  items  write  Cash  Received;  above  the 
second  group,  Cash  Paid.  An  outline  of  your  cash  record  for  the  transac- 
tions of  exercises  8  and  9  is  given  on  pages  68  and  69  for  your  guidance. 

WHOLESALE    SHOE    BUSINESS    (Continued) 

Exercise  8 
Dec.  II 

Huy  of  Ely  Abrams,  n/io,  30  doz.  E   (q>  ^^4.80. 

Two  tons  of  the  coal  purchased  on  the  3d  mst.  h.i\(.-  luen  ckli\rred 
to   Mr.   Morgan's  residence. 

\\  hat  account  was  charged  with  the  cost  ol  this  coal  .'  Should  house- 
hold expenses  of  the  proprietor  be  charged  to  the  business  ?  \\  hat  entry 
will   adjust  this  matter? 

Sell  Edward  Davis,  n    10,  10  doz.  E    (n  $^.10. 

Remit  Holbiook  &:  Hayward  for  invoice  of  the  14th  ult.,  i^375.  (For 
loiin  of  this  entry,  see  page  69.) 

Name   the   debtor  in  this  transaction.     Name  the  creditor.      Cii\c  the 

67 


68 


ACCOUNTS    AND    ACCULNTING    PRACTICE 


^  'J  /'  ^  /^^l^:-<i'^>zAt^^?z^ 


Oa\t 


jyz^. 


/J 
/J 
/^ 

c 

/a 
2-0 

u 


2/1 

3/ 
3/ 


^^orVktAiVort 


-< 


^''^^(ayu^±c■'■nya^^  '  -=fiytyt^.   '/i 


~  'o^yr.->';^^C<rc*<''»*t^  r^Oyei<i-y^ 


['£'6-^2. 


7         i^ 


^>J^- 


/•>-/ 


'/^ 


rule.  Note  that  economy  of  time  and  labor  should  determine  the  form  of 
the  record,  and  that  this  form  is  much  shorter  than  the  one  we  have  been 
usin^  for  this  type  of  transaction. 

Buy  of  David  Dunn,  terms  30-day  note,  50  doz.  B    O'  }^-4- 

Dec.  13 

Give  David  Dunn  P.  A.  Morp;an's  30-day  note  for  invoice  of  the  iith 
inst.,  i^i200,  making  the  note  payable  at  your  local  bank. 

In  the  transaction  of  the  iirh,  when  we  purchased  these  poods,  we 
credited  David  Dunn.  Givinp;  this  note  does  not  cancel  the  debt  ;  but  it 
is  accountmp  practice  to  keep  debts  that  arc  (-\"idi'nccd  bv  notes  and  time 
drafts  under  a  separate  head.     So  we  should  transfer  this  item  now  from 


WHOLESALE    SHOE    Bl  SINESS 


69 


~^^^i^L-d^-'A^    A^^^.-^C-'e^ 


V)a\t 


f- 


A^. 


'9 

2/ 


1/ 

23 

\2f 

,"/ 

2f 
3/ 
3 


VoV 


\i::^^nrC^-iyirtr^t'x:y/svy.^^ 


i\<  tom\\t     V"^V. 


"^.-«Z-(^<#C' "^ 


^^U 


Vav\»tvi\arj 


Dunn's  account  to  Notes  Payable  —  debit  the  former  and  credit  tin-  latter 
-  and  write  the  following  explanation:  Gave  David  Dunn  our  jo-day 
note,  dated  Dec.  11,  and  payable  at  (your  nearest  bank)  for  inv.  12  11, 
$1200.  Notes  Payable  is  credited  when  you  issue  your  negotiable  promise, 
that  is,  w^hen  vou  give  your  note  or  accept  another's  draft,  and  debited 
when  such  promise  is  redeemed.  This  subject  is  more  fully  treated  on 
pages  1 19  and  120. 

Sell  Frederick  Austin,  n/io,  8  doz.  D    C"  ^^S- 

P.  A.  Morgan  makes  an  additional  investment  of  J^ 500.  (For  form  of 
this  entry,  see  page  68.) 

Name  the  debtor  in  this  transaction.  Name  the  creditor.  What 
form  of  entry  did  we  make  Nov.  i  when  P.  A.  Morgan  made  a  cash  invest- 


70  ACCOUNTS    AND   ACCOUNTING    PRACTICE 

ment  r  That  entry  took  four  luies,  and  we  have  accomphshed  the  same 
result  here  in  one  hne.  \\  hat  considerations  should  determine  the  form  of 
an  entrv  '  Does  the  form  of  the  entry  in  any  way  affect  the  relationship 
of  the  dehtor  and  the  creditor  involved  ' 

1*.  A.  Morgan  fiives  his  30-da\'  interest-hLarmj:;  note  for  ^500  to  \V.  i' . 
Slocum,  for  a  loan  of  that  amount  in  cash.  (For  form  of  this  entry,  see 
page  68.)     When  is  Notes  Payable  a  creditor  r     W  hen  a  dehtor  : 

Dec.  14 

Receive  of  Rulif  \  .  Lawrence  for  invoice  of  the  2d  inst.,  $360. 
Make  the  followinu;  payments  : 

\Vm.   Brown,   ^14;  F.    \.  Jones,  J^i  3,  salaries. 
Postage,  telegrams,  and   petties,  ^^8.50. 
Name  the  debtor.      I  he  creditor. 

P.  A.  .Morgan  takes  from  stock  for  his  personal  use  2  15  di  $}.  ("Credit 
Merchandise  Stock.) 

Dec.  16 

Complete   negotiations   with    Franklin    Lord    for   the   purchase  of  the 
premises  now  occupied  by  the  business,  for  $1 1000,  on  the  following  terms  : 
Receive  credit  for  unexpired  rent,  $50. 
Give  a  first  mortgage  on  the  premises  of  ^5000. 
Pay  the  balance  in  cash,  ^^5950. 

Procedure 

First,  make  an  entry  in  the  journal  debiting  Rral  Estate  and  crediting 
Franklin  Lord,  Vendor,  for  $\  1000.  Using  your  own  address  and  the  name 
of  your  own  county,  write  an  explanation  of  this  entry  after  the  following 
model:  For  purchase  of  business  premises,  known  as  No.  J./5  Main  Street, 
as  per  deed  e.xecuied  this  day  and  recorded  in  the  office  of  the  clerk  of  the  county 
of  Kings,  in  Liber  1^6  of  Deeds  at  page  yS. 

Second,  make  a  second  journal  entry  debiting  Franklin  Lord,  Vendor, 
and  crediting  Mortgage  Payable  for  ^^5000.  Substituting  your  own  address 
and  county,  explain  this  entry  as  follows:  Mortgage  of  P.  A.  Morgan  to 
Franklin  Lord  for  $^000,  bearing  interest  at  5%  per  annum,  payable  semi- 
annually, and  covering  premises  knozvn  as  No.  J./5  Main  St.,  which  was 
executed  this  day  and  recorded  in  the  office  of  the  clerk  of  the  county  of  Kings 
in  Liber  i8g  of  Mortgages  at  page  1 21. 

I  bird,  make  an  entry  in  your  journal  crediting  E.xpense  and  debiting 
Frank! ui   Lord,   Vendor,  for  i^^O,  with  an  appropriate  explanation. 

I'ourth,  make  an  entry  under  Cash  Payments  debiting  Franklin  Lord, 
Vendor,  and  crediting  Cash.  Explain  this  entry  by  reference  to  the 
journal  page  of  the  preceding  entries.      In  the  folio  column  place  a  check 


WHOLESALE    SHOE    BUSINESS  7  I 

mark  (v')  opposite  each  "  Franklin  I.ord,  \  cndor  "  item,  and  do  nut  post 
these  items. 

In  a  mercantile  business,  personal  accounts  are  usually  those  of  cus- 
tomers or  trade  creditors.  And  if  a  personal  account  has  some  other  func- 
tion, it  is  wtll  to  indicate  its  character  by  some  tjualifving  word,  as  **  Capi- 
tal," "  Private,"  "  \endor  "  (seller),  "  Wndti-  "  (buyer),  "  Licpiidation  " 
(settlement),  "  Loan,"  etc. 

Buy  of  French  Brothers,  terms  30-day  note,  12  do/.  C   («  $t,o. 

The  following  invoice  represents  a  purchase  of  5  doz.  F   c«  $-{2.. 


?> 


THE  ^ 

SHOE 


I    \lll.l     ADDRKSS   ■•  BARSAKI)        IIIICAC." 

HIE    BARNARD   SHOE   C0M1^\^^ 

MANIFACTIRJRS 

180  to  187  Adams  Street, 

Chicago,  U.S.A.,  Dec.  14,  19  — 

Salesman  Kinp 

Shipped  by       20)Jz  C.  &:  N.  W  . 
Terms  Rr 

2  per  cent  30  days,  net  60  days 

PAYABLE  IN  OnCACO   OR   NEW  YORK   FXCIIANT.E.      WE  CHARGE  EXTRA   FOR   SINGLE   PAIRS 


LOOK  FOR  THE  NAME  IN  STRAP 

Sold  to     P.  A.  Morgan 
Address     ("V'our  address) 


Factory  No.  1  Case  No  I  Pairs 


In  Kc-orilcriii^  t,ni  1  .n.U)ry 
Number 


27442 
'  27441 

27440 


velvet  Cf  Butt  zb 
velvet  Cf  Sm   Butt 
velvet  Cf  Sm  Butt 
penant  Cf  Blu  20 
ptnant  Cf  Blu  20 


Width 
C 

C 

D 
C 
I) 


Last 


Price 


Hippo  '  3  50 
Cork  IT  3  50 
Cork I r  3  50 
BustiT  3  50 
Buster     3  50 


60 


Extension       Total 


42  00 
42  00 
42  00 
42  GO 
42  00 


IC  ocl 


72  .^v...^  ,..    AND    ACCOLXTING    PRACTICE 

Make  the  following  sales : 

George  Graber,  terms  cash,  lo  doz.  A   ^  $19.20. 

L.  L.  Vance,  terms  30-day  note,  15  doz.  A   h  J^ig.io. 

I'hn  n<r:'<-  lO  days,  I O  doz.  .A    <n  $\().10. 

Fay  Waiter  Lddv  Cik.  v^o.  for  invoice  of  1 1    16,  $625. 
Receive  rh     '  "  '-     '-    : 

M   "'      ^  V*  ......>.,>w  i')r  poods  returned  the  yiii  iii5i.,  ^2.50. 

i,-    _:d  Davis  for  invoir.-  of  the  15th  u'f     <\zn 

Dec    17 

Make  the  f'^'^'^ing  sales: 

S.  E.  I      -_-rs,  n    10,  20  doz.  E   ^.  $7.10. 
R.  S.  Kingsley  &  Co.,  n   30,  10  do/..  B    (n  $}6. 
Receive  of  RulifW  Lawrence  for  invoice  of  the  7th  inst.,  ;S72.50.     Allow 
him  $2.50  on  this  invoice  for  imperfections  in  goods,  in  accordance  with 
his  representations  and  request.     (Debit  SaUs  and  credit   Rulif  /'.   La'jc- 
f  in  the  journal.) 

Dec.  19 

Pay  the  Bell  Telephone  Co.  for  December  service,  $4.50. 

Receive  of  George  Graber  for  invoice  of  the  i6th  inst.,  $192. 

Receive  of  L.  L.  Vance  his  30-dav  note,  dated  Dec.  16,  for  invoice  of 
that  date,  .^288. 

Receive  of  Rulif  V.  Lawrence  for  invoice  of  11    11^  $2i^. 

Give  French  Brothers  our  30-day  note,  dated  to-day,  for  invoice  of 
the  i6th  inst.,  ;$36o. 

Dec.  20 

Buy  of  Ely  .Abrams,  n    10,  40  doz.  E   %  $4.80. 
Sell  S.  E.  Rodgers,  n^  30,  100  E   ^,  58  ^. 

Posting 

I  he  entries  of  this  exercise  have  been  recorded  in  five  separate  groups. 
In  practice  it  is  customary  to  keep  these  groups  of  entries  under  separate 
covers,  or  in  separate  books.  I* or  convenience  in  designating  the  different 
sections  of  the  record,  we  shall  hereafter  refer  to  the  several  parts  as  the 
"  journal,"  '*  sales  book,"  '*  purchase  book  "  and  "  cash  book."  the  cash 
book  to  include  the  two  groups  of  cash  items  —  cash  received  and  cash 
paid. 

If  you  are  encountering  any  difficulty  in  getting  these  items  to  the 

'  that  when  the  ledger  is  summarized  in  the  trial  balance  there  is 

an  equality  of  debits  and  credits,  you  should  study  carefullv  the  following 

outline.     Ju*'     -  f- ''1  rr.„.     rion  gives  rise  '  ■  ''^e  relationship  of  debtor 


WHOLESALE    SHOE    liUSINESS 


73 


and  creditor,  so  does  each  group  of  transactions  give  rise  to  such  relation- 
ship,  and   present   an  ecjuahty  of  dehit   and  credit   items,  as  follows  : 

Journal  Form 


(Account)  Dr. 

(Account)  Cr. 


PiRCFiASE  Book   Form 


(Accounts)  Cr. 


(Account)  Dr. 


3 
6 
8 

17 

Sales  Book   For.m 


(Accounts)  Dr. 

(Account)  Cr. 


II 

1 

1                     1 

Cash  Receipts  Form 


(Accounts)  Cr. 


(Account)  Dr. 


■»7 


Cash   Payments  Form 


(Account)  Cr. 


1 

lO 

1 

.  1 

74  ACCOUNTS    AND    ACrorNTINC.    I'KA(   IKE 

Now,  if  we  collect  and  arrange  the  debtor  and  creditor  items,  we  shall 
have : 

DEBTORS  CREDITORS 

S   5.  S   5- 

•7-  3- 

12.  6. 

7.  8. 
9.                                                  28. 

37-  25. 

3-  2. 

8.  6. 
10.  4. 

21. 
S108.  S108. 

An     KXERCISt     IN     MhNTAL     PoSTING 

Turn  to  your  cash  received  record,  exercise  8.  From  whom  is  the 
value  received  in  these  items  r  Name  the  creditors.  To  which  side  of  the 
ledger  and  under  what  captions  are  these  items  to  be  posted  r  Under 
what  date  is  each  item  to  be  posted:  To  what  pape  of  the  ledger: 
W  iiere  is  the  cash  book  page  to  be  entered  :  \\  here  is  the  ledger  page 
to  be  entered  after  the  item  is  posted  ?  W  hat  purpose  does  the  paging 
serve  ?  Ihis  is  a  record  of  value  received  by  what  department  of  the 
business  r  Name  the  debtor.  For  what  amount  :  lo  which  side  of  the 
ledger,  on  what  jiagc  and  under  what  caption  is  this  item  to  be  posted  : 
What  date  ?  (In  posting  totals,  always  give  the  date  of  the  last  trans- 
action 111  the  series.)  \\  hat  should  be  done  to  prevent  posting  an  item 
twice  or  omitting  it   altogether  .' 

lurn  to  your  cash  paid  record.  \\  hat  department  of  your  business  is 
shown  to  have  given  value  here.'  Name  the  creditor.  Ihe  amount.  To 
which  side  of  the  ledger  must  this  item  be  carried  :  Under  what  caption  ." 
\\  hat  date  :  \\  hat  page  of  the  cash  book  and  wjiere  entered  :  W  hat 
page  of  the  ledger  and  where  entered  :  1  hese  entries  indicate  value  re- 
ceived b\  what  persons  and  departments  of  your  business  .'  Name  the 
debtors,  the  dates,  and  the  amount  for  which  each  is  a  debtor.  To  which 
side  of  tin  ledger  and  under  what  captions  must  these  items  be  posted  ? 
I  low  many  parts  to  a  date:     State  again  the  purpose  of  the  post-mark. 

Now  turn  to  the  purchase  book.  \\  ho  gave  the  \alue  in  these  trans- 
actions .'  Name  the  creditors,  dates,  and  amounts.  On  which  side  of  the 
ledger  ami  uiukr  what  titles  must  these  items  be  posted  .'  W  here  do  you 
enter  the  page  of  the  jiurchase  bt)ok  ?      Fhe  ledger  page?     Why:      Hhcre 


\\'HOLESALK    SHOK    BUSINESS  75 

in  the  ledger  do  you  write  the  terms?  Wliar  department  of  the  business 
received  value  in  each  purchase  transaction  :  \\  hat  is  the  total  value 
received  by  this  department  r  What  name  is  ^iven  to  that  which  receives 
valuer  On  which  side  of  the  ledger  is  this  total  to  be  posted:  What 
date?  In  what  column  and  opposite  what  item  should  you  enter  the  pur- 
chase book  paj^e  r      W  hen  :      \\  here  do  you  enter  the  ledger  page  r 

With  your  sales  book  before  you,  answer  the  following:  W  ho  receives 
value  in  a  sales  transaction  r  \\  hat  class  name  is  given  to  those  to  whom 
we  sell  goods  ?  Name  all  the  debtors  in  the  sales  book.  (Jive  the  dates  on 
which  th(.\  became  debtors,  and  the  amounts  in\'oI\fd.  10  whicii  side  of 
the  ledger  and  under  what  titles  must  these  items  be  posted'  Where 
should  the  terms  be^  entered  in  the  ledger  r  How  do  you  avoid  posting 
twice  or  omitting  an  item  '  What  department  of  the  business  gives  value 
in  a  sale  :  Name  the  creditor.  Cjive  the  amount,  the  date,  the  title  of  the 
account,  and  the  page  of  the  ledger  to  which  this  amount  is  to  be  posted. 
W  Inch  side  ot  the  ledger  .'  I  his  transfer  is  made  /rom  what  page  ?  Where 
is  this  page  to  be  entered  ?  The  transfer  is  made  to  what  page  .'*  Where 
entered  ? 

Turn  to  the  journal.  Name  the  debtors  in  these  entries.  The  credi- 
tors. To  which  side  of  the  ledger  and  under  what  captions  are  the  debtor 
Items  posted  ?  1  he  credit  items  .'  Should  this  posting  be  post-marked  .' 
Why  ' 

WHOLESALE   SHOE   BUSINESS  (Concluded) 

Exercise  9 

Continue  the  plan  of  grouping  cash  items,  sales,  and  purchases.  Each 
entry  should  be  fully  explained,  or  specific  reference  to  supplementary 
records  should  be  made  that  will  give  a  full  explanation.  Vhv  December 
narrative  of  transactions  is  concluded  in  this  exercise. 

Dec.  21 
Pay  Ely  Abrams  for  invoice  of  the  iith  inst.,  i^i^^.. 
Buy  of  David  Dunn,  2/10  n  '30,  100  doz.  B    (a  ^24. 
Make  the  following  payments: 

Wm.   Brown,  i^i  ^  ;    F.  A.  Jones,  ^15,  salaries. 
Petty  disbursements,  ^8.50. 
P.  A.   .Morgan,  personal  drawings,  ^40. 
Sell  Richard  (jrainger,  terms  cash,  10  doz.  E   f/  $y. 

Dec.  23 
Pay  the  "  Boot  &  Shoe  Recorder  "  in  settlement  of  their  bill,  12    16, 
for  advertising,  5^35.50. 

Sell  A.  J.  Ackley,  terms  n   30,  3  doz.  A    (a,  ^^19.20;    4  doz.  B    (ti,  $2^. 


^6  ACCOUNTS    AND    ACCULMING    PRACTICE 

Return  to  David  Dunn  5  doz.  B   C"  $>2^,  goods  are  not  up  to  sample. 
Buy  of  Kagan  &:  Kendrick,  2    10  n   30,  10  doz.  D   %  9. 

Dec.  24 

Sell  John  K.  SicLii,  terms  i  5-da\   note,  15  doz.  E    (</  ^7.20. 

Sell  Isidore  Isaacs,  2    10  n   30,  4  doz.  F    (-/   ^^48. 

Pay  for  gifts  to  employees,  $zo. 

Should  this  item  be  charged  to  the  business  (Expense)  or  is  it  a  matter 
that  belongs  to  the  proprietor  personally  :  (jood  accounting  carefully 
distinguishes  between  business  and  personal  expenses.  If  you  thuik  the 
business  is  iustitied  in  rewarding  its  employees  in  order  to  get  more  loyal 
service,  charge  the  item  to  Expensf;  otherwise,  charge  it  to  Mr.  Morgan's 
personal  account. 

Dec.  26 

Receive  of  John  E.  Steen  the  following  note  for  invoice  of  the  24th  inst. 


No.    ^/-^  ^  Kansas  City.    Mn      g.<:lZ<>^  2z/IO  — 


the  order  o(^ 


'    y>i^  ^^/:/l^^.<2^^^^^^ri^  (r^  -  /•  r-T-V?  ^ . '  ; 


Dollars 


Value  received  -  ''- interest,  and  payable  at  the  First  National  Bank  of  Kansas  City. 


Mr.  Steen  has  written  on  the  back  of  this  note: 

Pay  to  the'  order  of  P.  .1.  Morgan,  John  E.  Steen 
Such  a  writing  is  called  an  "  indorsement."  The  note  is  made  payable 
to  Jt)hn  K.  Steen,  and  this  indorsement  transfers  it  to  P.  A.  .Morgan.  \\  hat 
is  the  accounting  name  for  this  paper  from  our  standpoint  r  What  is  the 
debtor.''  Name  the  creditor.  State  the  rule  involved.  If  W  \.  Morgan 
wished  to  pass  this  note  on  to  David  Dunn,  he  could  do  so  by  writing 
underneath  John  E.  Steen's  indorsemeiu.  Pay  to  the  order  of  David  Dunn, 
P.  .1.  Morgan.  Because  of  the  \va\  notes,  checks,  and  drafts  may  be 
transferred  from  one  person  to  another,  thev  are  said  to  be  negotiable. 
Receive  the  following  checks  : 

I'.dward  Davis  for  invoice  of  12    11,  ^70.56. 
Frederick  .Austin  for  invoice  of  12    13,  i?i20. 


WHOLESALE    SHOE    BUSINESS  77 

Note.  —  Refer  to  tlu-  account  of  Edward  Davis.  Kvidently  he  has  taken  2','  dis- 
count on  this  invoice.  Mr.  Morj^an  will  communicate  with  him  with  reference  to  the 
matter.      In  the  meantime  j;ive  him  credit  for  the  amount  of  his  remittance  onl\'. 

Henry  K.  Cioodrich  has  asked  tor  the  dehvery  of  the  l^ihiiice  of  his 
order  of  Dec.  0,  10  doz.  E    (</  ^^7.20,  and  rht-  shipment  has  heen  made. 

Dec.  27 

Sell  Wickwire  l^rothers,  terms  cash,  y]  do/.  A   (fi.  )5i8.96. 

Receive  of  John  Bennett,  for  invoice  of  12/16,  $188.16. 

Mr.  Morgan  explains  that  he  cjuoted  Mr.  Bennett  2^',  discount  in 
Novemher  and  that,  althoui^li  these  j2;oods  were  invoiced  at  net  10  days, 
lie  will  allow  the  discount.  Credit  Mr.  Bennett  in  the  cash  record  for  the 
amount  ot  his  remittance,  and  adjust  the  discount  hv  means  of  a  journal 
entry.  Is  this  a  purchase  discount  or  a  sales  discount  r  Is  Mt-rchandise 
Discount  a  debtor  or  a  creditor  .' 

Sell  R.  S.  Kingsley  &  Co.,  terms  2    lo  n   30,  10  doz.  C  fe  $42. 

Dec.  28 

Receive  of  Isidore  Isaacs  for  his  note  of  12/  28,  due  to-dav,  $z^2. 
Mr.  Morgan  will  cancel  this  note  and  return  it  to  Mr.  Isaacs.  Under 
what  title  has  this  note  been  carried  on  your  books  .'  Since  the  note  now 
passes  out  of  your  possession,  what  must  be  credited  .'  A  person  is  credited 
when  he  gives  us  a  note.  lie  must  not  be  credited  again  zvheii  he  pays  the 
■note. 

Make  the   following   payments : 

W'm.   Brown,  ^^15;  F.  A.  Jones,  }5i5,  salaries. 

OfHce  supplies  and  petties,  $y. 

P.  A.  Morgan,  personal  drawings,  $65. 

Dec.  30 
Receive  of  S.  \L.  Rodgers  for  invoice  of  12    17,  y^i44. 

Dec.  31 

Sell  Rulif  \  .  Lawrence,  net  cash,  20  do/.  B   (n\  $33.60. 

Pay  the  United  Gas  &  Electric  Co.  for  lighting  service  to  Dec.  28,  $4.65. 

sale  of  wholesale  shoe  business 

Exercise   10 

Mr.  Morgan  has  sold  his  business  to  David  Dunn,  the  transfer  to  take 
effect  at  the  close  of  the  present  business  period,  Dec.  31.  Mr.  Dunn 
agrees  to  take  over  at  cost  the  following:   stock  of  goods,  real  estate,  ofHce 


78 


ACCOUNTS    AM)    AfrOT'N'TTXr.    PR AfTirE 


furniture,  not  including!;  the  signboard,  and  5  tons  ot  unused  coal.  He 
agrees  to  assume  the  mortgage  of  ^^5000  in  favor  of  Frankhn  Lord,  to  give 
his  30-day  note  with  interest  at  6Vt  per  annum  for  ^2000,  and,  after  taking 
credit  for  the  amount  now  due  lum  on  book  account,  to  pay  the  bahmce 
in  cash.  I  he  mterest  accrued  on  the  mortgage,  the  discf)unt  allowance 
to  winch  Mr.  Morgan  would  ordniardy  be  entitled  for  tin-  jirepa\ment  of 
his  note,  as  well  as  the  nuichandise  discount  on  .Mr.  Dunn's  invoice  t)f 
Dec.  21,  are  to  be  disregarded.  I  he  goods  now  in  stock  are  found,  by  actual 
inventor\  and  .ippi  aisement,  to  have  cost  ^3956.80.  This  transaction 
for  the  following  entries: 

Decembkr,  19 — 


calls 


31 
David  Dunn,  \  endee 

.Mdse.  Stock,  Sched.  A 

Real  Estate,  Deed   12    31,  19 — 

OfHce  Furniture,  Sched.  B 

Expense,  5  T.  coal  (n  ^^5.50 

For  a.sscts  taken  over  by  Daviii  Dunn  in 
accordance  with  the  terms  of  an  agreement 
by  and  between  P.  A.  Morgan  and  David 
Dunn  of  to-day'.s  date. 

31 
Mortgage  Payable 

P.    A.    Morgan    to    Franklin    Lord,   dated 
Dec.   16,  19 — ,  ^55000 

Notes  Payable 

Note  of  Dec.    13   at   30  days  favor  Da\ui 
Dunn,  ^i  200 

David  Dunn 

On  book  account 

Xntes  Receivable 

1).   Dunn's   30-day  note  with   int.  6'^'(   per 
.iiiiiuin,  5^2000 

C'.ish  C\  B.  page  I 

David  Dunn,  \  endee 

David  Dunn  assumes  and  agrees  to  pay  the 
mortgage  of  5^5000,  covering  the  premises 
known  as  345  .Main  Street,  cancels  our  note 
of  Dec.  13  in  his  favor  for  }^i  200  and  our  in- 
debtedness to  him  on  book  account  of  ^2280, 
gives  us  his  30-day  interest-bearing  note  of 
5^2000  and  cash  ^^5029  30,  being  in  consid- 
eration of  an  agreement  between  P.  A. 
Morgan  ami  D.i\id  Dunn  of  to-day's  date. 


15509  30 


3956 

80 

IIOOO 

525 

^7 

50 

5000 


1200 


2280 


2000 


5029 


30 


15509  30 


MORGAN  S    BUSINESS    LIQllDATED  79 

Make  an  entry  in  the  cash  book  for  the  cash  received;  phice  a  check 
mark  (\)  in  the  foho  column  an  J  do  not  post  the  item,  as  I)a\Kl  Dunn, 
Vendee,  receives  full  credit  in  the  journal  entry.  Also,  check  the-  cash  item 
in  your  journal  entry  and  do  not  post  it,  as  cash  \mI1  in  charj:,iil  \n  the 
cash  book. 

Post  all  entries  to  date  and  take  a  trial  balance  of  diflVrenccs  dated 
Dec.  31,  19^. 

The  Cash  Book 

rhat  time  and  labor  are  saved  by  grouping  the  cash  items  has  already 
been  demonstrated.  But  the  cash  book  has  another  and  a  more  important 
function.  Owing  to  the  frec]uenc\'  with  which  the  result  of  the  cash  record 
and  actual  count,  or  iinentory,  ot  cash  must  be  compared  as  a  check  upon 
errors  in  making  change,  possible  thett,  etc.,  the  convenience  of  a  separate 
record  of  cash  receipts  and  disbursements  in  parallel  columns  is  at  once 
apparent.  If  inoney  is  handled  by  persons  other  than  the  proprietor,  it  is 
imperative  that  the  record  and  the  count  be  brought  into  daily  agreement. 
I  he  difference,  of  course,  between  cash  received  and  cash  paid  is  the  amount 
we  should  have  on  hand.  In  calculating  the  amount  of  cash  that  we 
should  have  on  hand,  we  must,  of  course,  include  the  amount  on  hand  at 
the  beginning. 

Consult  the  form  of  cash  book,  pages  80  and  81,  and  keeii  your  cash 
record  of  the  following  exercise  in  such  a  way  as  to  show  the  amount  of 
cash  we  should  have  on  hand  Jan.  31,  without  posting  cash  items  to  the 
ledger. 

P.   A.   MORGAN'S   BUSINESS,    LIQUIDATED 

Exercise  it 

The  following  transactions  bring  the  business  of  P.  A.  Morgan  to 
a  conclusion.  Continue  the  entries  as  heretofore,  grouping  the  cash  items 
and  journalizing  all  transactions  not  involving  cash. 

Jan.  2,  19 — 

Make  the  following  payments  : 

Fagan  &  Kendrick,  for  invoice  of  12   23,  ^90,  less  2  9^,  ^88.20. 

I^arnard  Shoe  Co.,  for  invoice  of  12    14,  )52io,  less  2  Vd  $20^-90. 

Ely  Abrams,  for  iinoice  of  12/20,  ^^192. 

Northcott  Truck  Co.,  December  freight  and  drayage  bill,  ^21.80. 

Win.  Ikown,  $:,  ;    F.  A.  Jones,  ^^5,  two  days'  wages. 

S.  A.  Sharpe,  legal  services,  ^^40. 
Charge  Fagan  &  Kendrick  and  the  Barnard  Shoe  Co.  respectively  in 
the  journal  for  the  amount  of  the  discount  taken  on  these  invoices  to  balance 


8o 


ACCOUNTS   AND   ACCOUNTING    PRACTICE 


Cash   Rkceived 


i:)ate 

F..I. 

Accounts  Cr. 

Particulars 

Items 

Total 

'9 

Jan. 

I 

Kalancc 

Cash  un  hantl 

5955 

57 

3 

Isidoif  Isaacs 

Inv.  12 '24,  2^r  J-  7 

188     16 

4 

Ricliartl  Grainger 

Inv.    II    21    12,  21 

H>o,       , 

4 

4 

4 

7 

7 

7\ 

15! 

16 

19 

23 

23 

23 

30 

30 

31 

Cash  Dr. 

5312 

57 

IT  268 

H 

19 

Feb. 

I 

Bal.  brought  forward 

1    9843 

09 

their  accounts.  Is  this  a  purchase  discount  or  a  sales  discount  r  Is  Mer- 
chandise Discount  a  debtor  or  a  creditor  for  this  discount  ?  Mr.  Morgan  has 
settled  the  account  of  Edward  Davis  bv  allowing  him  the  discount  on  his 
purchase  of  Dec.  11.     Adjust  this  by  means  of  a  journal  entry. 

Jan.  3 
Receive  of  Isidore  Isaacs  for  invoice  of  12   24,  less  2  %,  ^188.16. 
Credit    IMr.    Isaacs   in    the   cash    record    and    dispose   of  the   discount 
through  a  journal  entry. 

Jan.  4 
Receive  the  following  checks  : 

Richard  (Jrainger  for  invoices  ii    21  and  12    21.  ^190. 
Riilit  \  .  Lawrence  in  full  of  account,  ^^672. 
W'lckwire  Brothers  for  invoice  12   27,  ^^142. 20. 
Henry  K.  Goodrich  for  invoice  i2/2(),  ^^72. 


MORGAN  S    BUSINESS    LIQUIDATED 


8i 


Cash    V  \\d 


Date 

Fol. 

Accounts  Dr. 

Particulars 

Ittiiis                 lotal 

19  — 

J;.n. 

2 

Fagan  &:  Kendrick 

Iiiv.  1 1  ^23,  less  2%  J. 

S8 

20 

2 

BaiiKiicl  Shoe-  Co. 

"12,  24,  less  2';;  J.  7 

205 

Ho 

, 

2 

2 

2 

2 

12 

12 

18 

30 
31 

Cash  Cr. 

1425 

05 

31 

^a/.  carried  forward 

9«4.> 

09 

/^ 

1126S 

'4 

Jan.  7 

Receive  the  following  checks  : 

R.  S.  Kin<;sley  &  Co.  for  invoice  12/27,  less  2  ^f,  $411.60. 
Clayton  Ensign,  5^566.01,  to  be  applied  as  follows: 
Invoice  12/2,  less  2  ^l,  ^^382. 20. 
C.  Ensign's  note  of  Nov.  29,  due  12/29,  ^i^.v^t. 

Jan.  12 

Pav  \V.  F.  SlociMii  in  settlement  of  his  note  and  nitercst  due  to-day. 

Face  of  note,  i^^oo.      Interest  accrued  30  days,  6  *?(',  ^^2.50. 

Interest  is  the  right  to  the  use  of  nionev,  —  a  right  that  is  bought  and 
sold  just  as  other  rights  are  bought  and  sold.  When  you  sell  the  right  to 
use  your  mone\',  credit  th;ir  which  \()u  sell  Interest;  when  you  buy  the 
right  to  use  another's  money,  debit  that  which  you  buy —  Interest.  BrieHy, 
debit  Interest  when  it  costs  value,  and  credit  Interest  when  it  earns  value. 


82  ACCOUNTS   AND   ACCOrN'TIXG    PR ACTirE 

In  tills  transaction  Interest  has  cost  ^"^2.50,  and  is,  therefore,  a  dt-broi 
item  for  rhar  ainouiu. 

Jan.  15 

Receive  of  I..  1,.  \  ancc  for  his  note  of  12    16  due  to-day,  )?288. 

Jan.  16 
Recei\e  of  R.  S.  Kingsle\'  6>;  l"o.  tm  invoice  12    17,  ^^360. 

Jan.  18 

Pay  French  Brothers  for  their  note  due  to-day,  ^^360. 
French  l^rothers  were  debited  when  you  gave  them  iliis  note;   do  not 
dehir  them  aj^am. 

Jan.  19 

Receive  of  S.  E.  Rodgers  for  invoice  of  12   20,  ^58. 

Jan.  23 

Receive  the  following  checks  : 

A.  J.  Ackley  for  invoice  of  12^23,  J^i  53.60. 
John  E.  Stecn,  ^^201,  to  be  applied  as  follows: 

Note  of  Dec.  24  due  to-day,  ^108. 

Invoice  of  Nov.  25,  ^593. 

Jan.  30 

Pay  postage  and  petties,  ^4.75. 

Receive  check  of  David  Dunn  ^2010  to  be  applied  as  follows: 

Note  of  Dec.  31,  due,  ^2000. 

Interest  30  days,  6'!7,  $\o. 
Has  Interest  cost  or  earned   something:     Is   Interest   a   debtor  or   a 
creditor  ? 

Closing  the  Cash  Book 

If  you  have  completed  the  January  entries,  you  should  now  sum  up  the 
cash  record,  state  the  conclusion  tt)  winch  this  record  of  receipts  and  pay- 
ments leads,  and  carry  such  conclusion  forward  to  Feb.  i.  (See  form, 
pages  80  and  81.) 

I  he  title  "  Cash  "  includes  not  only  currency  (paper  and  metal  money), 
but  everything  that  passes  current  as  mone\  in  the  course  of  trade.  Checks, 
bank  drafts,  postal  and  express  money  orders  are  recorded  as  cash,  because 
they  can,  or(linanl\,  be  converted  into  money  immediately,  if  the  holder 
so  desires. 

An  account  is  a  depository  of  value.  I  he  Cash  account  represents  on 
your  books  the  custodian  of  certain  value;    it  is  charged  with  the  value  it 


-V- 


MORGAN  S    BOOKS   CLOSED 


S3 


receives  and  is  credited  with  the  value-  it  yields.  Ihe  Cash  account  of 
exercise  li  has  received  isi  1268.14  and  j^iven  back.  ^^1425. 05.  It  should 
accordinjily  possess  the  ditt'erence  between  these  amounts,  t)r  5^9843. ck;. 
This  result,  however,  is  always  verified  by  counting  the  cash  on  hand  and 
determining  the  amount  on  deposit,  assuming  that  a  bank  account  is  kept. 
An  account  is  a  record  of  events  which  is  summarized  and  brou^^ht  to 
a  conclusion  periodically.  1  he  period  of  rime  covered  by  this  account  ends 
Jan.  31.  Closinj:;  the  account  is  merely  di\esting  it  of  its  holdini^s.  1  he 
period  endin»2;  Jan.  31  gives  to  the  period  beginning  Feb.  1,^^9843. 09.  1  he 
period  giving  the  value  (January)  is  a  creditor;  the  pericni  receiving  the 
value  (Februar\  ),  a  debtor.  Ihe  amount  carried  forward,  being  the  dif- 
ference between  the  two  sides,  is  called  the  "  Balance,"  and  is  sometimes 
written  in  the  old  account  in  red,  although  this  is  not  imperative.  Closing 
entries  are,  m  {■)rinciple,  like  all  other  entries  -  transfers  of  value  from 
one  account,  or  one  period  of  time,  to  another.  Always  debit  that  which 
receives,  and  credit  that  which  gives^  value.  The  cash  book  closing,  exercise 
II,  expressed  in  the  form  of  a  journal  entry  should  be 


Jan.   31 
Cash  Account  (Feb.  i) 
Cash  Account 

Cash  on  hanil  carried  forward 


9843 


09 


984*^  "00 


Do  not  journalize  this  closing,  however.  Post  the  cash  book  and 
journal,  and  take  a  trial  balance  of  differences  dated  Jan.  31.  1  hi-.;  trial 
balance  includes  the  results  of  all  transactions  since  Nov.  i. 

Statement 

If  t)n  Jan.  31  .Mr.  Morgan  had  called  for  a  statement  showing  the  out- 
come of  his  business  venture,  and  the  various  factors  involved  in  that  out- 
come, such  statement  might  have  taken  the  form  shown  on  pages  84  and  85. 


p.  a.  morgan's  business,  books  closed 
Exercise   12 

^'ou  were  told  in  the  earl\  pages  of  this  book  that  the  business  man 
expects  the  things  he  owns  to  render  pecuniary  service;  that  such  expecta- 
tion depends  for  its  realization  upon  the  v;ilue  outcome  of  the  things  to 
which  such  ownership  relates;  and  that  such  value  outcome  can  In  deter- 
mined if  we  debit  that  person  or  department  of  the  business  that  receives 
value,  and  credit  that  person  or  department   that  gives  value.     \\  e  have 


84 


ACCOUNTS   AND   ACCOUNTING   PRACTICE 


Rl'SINKSS   AND   FINANCIAL   STATEMENT 

For  nil     I'l  rioo   from   Nov.    i    to  Jan.   51,    19 — 

Trading  Account 


Purcliasfs  for 
the  period 
Less  rt'turnt-d 
purchases 

Add  frcipht  &; 
drayagc 

Deduct  stock 

taken  over  by 
David  Dunn" 

Cost  of  goods 

sold 
Balance,  gross 

profit,  carried 

to  Pro  tit  &: 

Loss 


Sales  for  the 

period  ' 

7246 

80 

Less  returned 

sales 

-j-j 

50 

>ales,  net 

7169 

30 

Profit  &  I 


-\ccor\T 


Kxpense 
Depreciation  of 

Office  lurniture 
v.  A.  Morgan, 

net  profit,  c,  d 


651 

45^ 

15 

II25 

09! 
1 

1 

1 

i79L 

Trading  Account 

Interest 

Mdse.   Discount 


P.     A.     AIORCAN 


Drawings 
Capital  c  d 


282 

9843 

09 

10125 

09 

Investment 

Profit  brought 
down 


8500 
500 


11;;     OQ 


'  Stock  appropriated  by  the  proprietor  for  personal  use  is  included  with  Sales. 
*  In  a  K<>ing  business  this  item  is  the  inventory  at  date. 


MORGAN  S    I5UOKS    CLOSED 


Sq 


Balance  Sheet 


Cash 


w^i; 


r.  A.  Moij^.iii 

Capital 


w84^     09 


followed  this  rule  in  the  business  of  P.  A.  Morgan,  and  it  has  brought  us  to 
thf  results  shown  in  the  trial  balance  of  Jan.  31,  as  follows: 

Trlal   Balance,  January  31,   19 — 


P,  A.  Morgan,  Capital 

P.  A.  Morgan,  Private 

Cash 

Interest 

Office  Furniture 

Mdse.  Stock 

Mdse.  Purchases 

Mdse.  Sales 

Freight  &:  Drayage 

Mdse.  Discount 

Expense 


282 1     1 

9000 

9843 

09 

1 

7 

.^0 

15 

9296 

3962 
7163 

80 
30 

53 

30 

C^-.i 

4' 

7 

24 

20140 

N 

20140 

^} 

W  hile  we  have  followed  the  rule  of  debiting  that  which  received,  and 
crediting  that  which  gave,  value,  it  is  apparent  from  the  above  trial  balance 
that  Merchandise  Stock  and  Merchandise  Sales  must  have  received  value  of 
which  we  have,  as  yet,  made  no  record.  1  ransfers  of  value  have  been  made 
from  time  to  time  as  goods  were  placed  111  stock,  ami  tlun  takiii  from 
stock  and  sold,  which  we  must  now  record.  And  in  making  a  record  ot 
these  transfers,  we  are  moving  step  by  step  toward  tiu-  conclusion  to 
which    all    business   leads  —  namely,   profit   or  loss. 

Profit  in  a  trading  business  is  the  difference  between  the  cost  price 
and  selling  price  of  goods  sold.  The  Sales  account  shows  the  selling  price 
of  goods  sold,  and  the  following  procedure  will  dttermine  the  cost  price  of 
goods  sold. 

The  cost  price  of  goods  bought  to  be  sold  is  made  up  of  two  items  : 
the  invoice  price,  which  is  recorded  in  tIu'  Merchandise  Purchases  ac- 
count, and  the  cost  of  delivery,  which  is  recorded  in  the  Freight  i^  Dray- 


86 


ACCOUNTS   AND   ACCOUNTING   PRACTICE 


age  account.  Accordingly,  the  first  step  in  marshaling  the  factors  of 
cost  is  to  transfer  Freight  i^  Drayage  to  Slerchandise  Purchases.  Tin-  fol- 
lowing entry  will  effect  this  transfer: 


31 
Mdse.  Purchases 

Freight  &:  Dray  age 

Kor  balance  transferred 


^^O 


5->     .>' 


Post  each  entry  as  made. 

It  should  be  evident  that  the  value  of  the  goods  purchased  is  in- 
creased by  the  cost  of  delivery  ;  in  other  words,  the  goods  have  received 
the  value  of  the  services  rendered  in  transporting  them.  We  have,  then, 
in  this  entry  debited  that  which  received  the  value  and  credited  that  which 
gave  the  value.     Copy  this  entry  in  your  journal  and  post  it. 

The  ne.xt  entry  should  record  the  transfer  of  value  from  Merchayidise 
Purchases  to  Merchandise  Stock,  for  the  value  of  goods  placed  in  stock,  as 
follows  : 


31 

Mdse.  Stock 

Mdse.  Purchases 

For  cost  of  poods  placed  in  stock 


9349  i  30 


9349    30 


What  became  of  the  goods  placed  in  stock  ?  The  stock  remaining 
Dec.  31  was  transferred  in  lump  to  David  Dunn,  but  this  transfer  has  been 
recorded.  Presumably  all  the  goods  placed  in  stock,  except  those  taken 
over  by  David  Dunn,  were  delivered  to  the  customers  of  the  business  by 
salesmen  ;  and  since  Merchandise  Sales  was  credited  with  the  value  given  bv 
the  sales  department,  it  must  now  be  debited  with  the  value  of  the  goods 
received  from  Merchandise  Stock,  being  the  cost  of  goods  sold,  as  follows  : 


31 
Mdse.  Sales 

Mdse.  Stock 

Cost  of  poods  sold,  charged  to  Sales 


:)j 


S(, 


53R6    50 


These  three  entries  havt-  eliminated   three  items  of  your  trial  balance 
of  Jan.  31,  and  your  ledger  now  stands  as  folK)ws  : 


MORGAN  S    liUUKb    LLUSKU 


S; 


P.  A.  Morgan,  Capital 

P.  A.  Morgan,  Private 

Cash 

Interest 

Office  Furniture 

Mdse.  Sales 

Mdse.  Discount 

Expense 


! 

9000 

2H2 

09  ' 

9«43 

7 

;o 

»5 

177^. 

So 

651 

45 

7 

-4 

107-1 

^  1 

1 

1 

^ \)iu"  attentK)ii  is  a<;aui  callttl  to  the  tuiulaniental  iiniKipIc  luukrUing 
this  perpetual  equality  of  dehits  and  credits;  namely,  the  simple  fact  of 
ownership.  Ownership,  of  course,  decreases  as  the  value  of  the  thing  owned 
decreases.  The  item  of  ^^15,  opposite  Office  Furniture,  represents  the  sign- 
board which  had  value  and  was  owned  while  the  business  continued  ;  but, 
since  it  no  longer  serves  the  purpose  tor  which  it  was  ac(juired,  we  may 
regard  it  as  having  no  value,  and  therefore  no  longer  owned.  Ihe  same 
thing  may  be  said  of  the  Expense  item.  The  various  things,  tangible  and 
intangible  —  stationery,  office  supplies,  postage,  rent,  services,  etc. — which 
Expense  represents,  zcere  things  owned  ;  but  the  \alue  of  these  things  has 
been  absorbed  by  the  business.  The  credit  items  under  Interest,  Merchandise 
Sales,  and  Merchandise  Discount  represent  the  gross  earnings  of  the  business, 
or  the  increase  in  ownership.  So  there  has  been  both  increases  and  decreases 
in  ownership,  and  if  we  take  the  difference  between  the  items  representing 
an  increase  and  those  representing  a  decrease,  we  shall  arrive  at  a  net  result. 

Values  absorbed,  or  things  consumed  in  running  a  business  are  alwaws 
represented  bv  debit  items  and  are  called  "  losses."  Items  representing 
an  increase  in  the  proprietor's  worth  are  always  credit  items  and  are  called 
**  profits."       The  difference  between  these  two  factors  is  net  profit  or  loss. 

The  bookkeeper's  method  of  making  this  deduction  is  shown  in  the 
following  entries  : 


31 

Profit  &:  Loss 

Office  Furniture 

E.xpense 

Balances  transferred 


666    I 


^51    45 


88 


ALLuLM.s    AND    ACCOUNTING    PRACTICE 


31 
Mdsc.  Sales 
Intticst 

Mdsf.  Discount 
ProHt  &:  Loss 

Balances  transfcrrcil 


1776 

80 

7 

50  i 

7 

24! 

«7Vi    54 


Copy  these  entries  in  your  joiiinal  and  post  tluni,  ami  noui  ledger  u'l! 
then  stand  : 


P.  A.  Morgan,  Capital 

P.  A.  Morgan,  Private 

Cash 

ProHt  &:  Loss 

1 

282 
9S43 

09 

9000 

10125 

1 

09 

TOT  2; 

ov 

09 

1                    i          1 

We  find  that  the  business  has  earned  a  profit  of  ^1125.09,  but  ot  this 

amount   Mr.    Morgan  has  withdrawn  ^282,  which,  of  course,   reduces  the 

profit   to  his   credit   and   ettects   a   corresponding   reduction   in  ownership. 

This  reduction  is  accomplished  by  means  of  the  following  entry,  which  copy 

in  your  journal  and  post : 


M 


Profit  &:  Loss 

P.  A.  Morgan,  Private 
Balance  transferred 


I  125    09 


I  I 


on 


And  we  have,  finally 


Hai.anck   Shhkt 


Cash 


9843    09 , 


'v 


1'.  A.   Mor-an. 

Invest  Hunt 
I'.  A.  MoFRan. 

Profit 


09 
OQ 


MORGAN  S    BOOKS    CLOSED 


89 


The  process  by  which  tlie  various  factors  of  cost  and  production  — 
the  expenses  and  earnings  of  the  business —  are  assembled  and  the  Profit 
y  Loss  account  constructed  is  called  "  closing  the  ledger."  Not  all  accounts 
enter  into  a  calculation  of  jiroHt  or  loss.  If  thi-  whoh*  or  am'  part  of  the 
value  lodged  in  an  account  remains  mtact  as  an  asset,  the  account  is  brought 
to  a  conclusion,  and  the  value  ot  the  asset  restated  underneath  the  rulings, 
or  under  a  new  headmg.  \  he  cash  account  closing,  pages  So  and  Si,  illus- 
trates this  procedure.  In  the  business  of  P.  A.  Morgan  just  concluded 
we  disposed  of  all  assets  except  cash  and  settled  all  liabilities  before  closing 
the  ledger.  If  we  had  closed  the  ledger  Dec.  31,  prior  to  the  sale  of  stock, 
office  furniture,  etc.,  to  David  Dunn,  the  merchandise  stock  account  would 
have  been  closed  as  follows  : 


Mfrcttandtse  Stock 


Dec. 

31 

Purchases 

Inventory 

J 

9349 

30 

30 
80 

1 

'4 
31 
31 

Inventory 
Sales  acct. 

7 
V 

3 

b 
3956 
5386 

80 
SO 

w  ^  4') 
3956 

9349 

30 

19 
Jan. 

I 

This  account  became  the  depository  of  value  to  the  amount  of  ^9349.30, 
which  was  transterred  trom  Merchandise  Purchases, hexw^xht  cost  of  goods 
delivered  and  placed  in  stock.  It  accounts  for  this  value  in  its  exhibit  of 
^^3956. 80  of  goods  on  hand  Dec.  31,  to  be  passed  to  the  January  account. 
Six  dollars  of  this  value  had  been  previously  taken  out  by  the  proprietor, 
and  the  balance  of  $5386.50,  being  the  cost  of  goods  sold,  is  charged  to  the 
Merchandise  Sales  account.  It  was  made  a  debtor  for  what  it  received  and 
is  now  made  a  creditor  for  what  it  has  given  back.  Emphasis  is  given  to 
this  fact  by  stating  the  footings  and  underscoring  them  with  signs  of 
equality,  and  the  account  is  said  to  be  "  closed." 

In  this  procedure,  it  may  be  repeated,  we  have  followed  the  same  rule 
of  debiting  that  which  receives,  and  crediting  that  which  gives,  value.  Mer- 
chandise Stock  received  value  from  Purchases,  and  gave  value  (i)  to  the 
proprietor,  (2)  to  the  January  account  and  (3)  to  the  Sales  account. 

In  closing  an  account  inxoKing  an  asset  item,  the  procedure  is  alwavs 
the  same;  namely,  debit  the  new  account  and  credit  the  old.  In  closing  an 
account  inxoKmg  a  liability  item  we  reverse  this  procedure.  If  we  had 
closed  the  ledger  of  P.  A.  Morgan  Dec.  31,  before  the  December  freight  bills 
had  been  paid,  m  closing  Freight  l^  Drayage  we  should  haw  piocceded  as 
follows : 


90 


ACCOUNTS   AND    ACCOUNTING    PRACTICE 


19—  i 
Dec. 


;  I      January  acct. 


pRKIGHT    AND    DkAYAGE 


ly      1 

^} 

SO 

Dec. 

8 

21 

So 

1 
19 
Jan. 

^  I       I'lirchuM  N  .11 1 1. 


I        Oiciiiibtr  accr. 


Of  course,  this  ^21.80  was  owing  the  transportation  company,  and  would 
properly  stand  to  the  credit  of  its  account.  1  his  expedient  of  hringmg 
current  liahilities  down  to  the  credit  of  the  account  to  which  the  item  has 
heen  charged,  saves  the  trouhle  of  opening  an  account  with  the  person  to 
whom  the  money  is  owed.  But  the  expedient  is  in  keeping  with  the  same 
rule  we  have  followed  in  making  all  entries.  \  his  debt  was  contracted  in 
December  and  will  be  paid  in  January.  If  January  pays  December's  debt, 
the  former  is  giving  value  to  rlu  latter.  Hence,  we  credit  the  January 
account  and  debit  the  December  account.  In  closing  an  account  involving 
a  liability  item,  debit  the  old  account  and  credit  the  new  for  the  amount  of  the 
liability.  This  expedient,  however,  is  not  practicable  where  there  are  many 
items  of  this  character. 


TRADING    ACCOUNTS 

Biiyinii;  goods  and  stllmti;  goods,  in  each  case,  calls  for  the  exercise  of 
different  kinds  ot  ahilir\ .  1  he  services  of  a  compereiit  bii\  er  might  be 
wholly  or  partially  niillihed  by  the  work  of  incompetent  salesmen  ;  on  the 
other  hand,  efficient  salesmen  might  bt-  handicapped  by  inct)mpetent  buyers. 
It  is,  therefore,  essentially  the  province  of  good  accountkeeping  to  record 
the  incoming  and  outgoing  of  values  so  as  to  reflect  the  services,  good  and 
bad,  of  diflerenr  classes  of  employees.  Furthermore,  goods  should  be 
placed  m  stock  at  cost,  and  so  recorded  ;  and  there  are  usually  several 
steps  in  the  process  of  determining  cost.  The  cost  of  goods  at  the  seller's 
place  is  not  the  cost  at  the  buyer's  place  ;  the  cost  of  transportation,  which 
in  some  cases  is  the  larger  factor,  must  be  included.  Allowances  and 
returns  must  also  be  considered  in  determining  cost.  Again,  goods  are 
bought  at  one  price  and  sold  at  another,  and  a  record  of  sales  also  involves 
returns  and  allowances. 

Manifestly  the  various  functions  of  the  trading  department  should  be 
recorded  separately.  Trading  activities  comprise  three  main  divisions: 
Purchases,  Stock  of  Goods  (merchandise  stock),  and  Sales;  and  three 
accounts  should  be  operated  to  correspond  to  these  divisions.  After 
"  freight-in  "  has  been  charged  to  Purchases,  and  return  purchases  credited 
to  this  account,  the  result  should  be  transferred  to  Stock  of  Goods. 

The  value  of  goods  placed  in  stock  passes  at  closing  time  (i)  to  the 
future  account-period  (the  inventory  of  goods  in  stock),  and  (2)  to  the 
Sales  account  (the  cost  of  goods  sold).  The  Sales  account  should  be  charged 
at  closing  time  with  "  freight-out,"  returns,  allowances,  etc.  This  account 
will  then  show  the  cost  and  selling  price  of  goods  sold,  and  will  lead  to 
gross  profit. 

1  he  student,  however,  will  fre(]uently  encounter  the  practice  of  com- 
bining stock,  purchases,  sales,  freight  and  drayage,  returns  and  allowances 
under  one  head  called  "  .Merchandise.  "  1  he  result  in  profit  or  loss  will,  of 
course,  be  the  same  whether  the  various  trading  activities  are  recorded 
separately  in  the  ledger  and  assembled  when  the  ledger  is  closed,  or  whether 
such  items  are  grouped  in  one  account  when  the  books  are  posted.  But  if 
the  proprietor  is  a  prudent  man,  he  wants  his  books  to  show  not  only 
results,  but  the  sources  from  which  those  results  are  obtained.  Market 
conditions,  for  instance,  may  require  dealers  in  commodities  to  sell  goods 
at  many  different  rates  of  profit.       The  seller,  however,  should  know  what 

91 


92  ACCOUNTS    AND   ACCOUNTING    PRACTICE 

average  rate  per  cent  of  profit  his  sales  arc  yleldinji.  If  the  margin  is  insuf- 
ficient to  meet  expenses,  dipreciations,  ;iiul  incidental  losses,  prices  must 
be  raised  or  expenses  reduced.  If  conipetirors  are  undtisclling,  prices  must 
he  lowered.  1  he  matter  ot  pricing  goods  is  much  too  important  to  be 
adjusted   without    tull    knowledge  of  all   the  circumstances   involved. 

A  merchant,  particularly  when  liberal  credit  is  offered,  is  prone  to  buy 
more  than  his  business  justifies.  The  stock  a  dealer  carries  should  al- 
ways have  a  dehnite  relation  to  the  amount  ot  business  done  by  him. 
I  nless  the  stock  is  turned  over  periodically,  too  much  monev  is  tied  up  in 
goods,  so  that  interest  on  capital  and  losses  from  depreciation  will  quicklv 
wipe  out  the  earnings  of  the  business.  judicious  buving  is  possible  onlv 
when  a  separate  record  of  past  experience  in  that  department  is  available. 
1  hese  and  other  considerations  more  than  justify  the  extra  cost  of  exhibit- 
ing trading  activities  in  detail. 


retail  coal  business 

Exercise   13 

The  following  exercise  illustrates  two  inethods  of  recording  stock 
purchases,  and  sales.  Separate  accounts  are  to  be  kept  for  the  coal  depart- 
ment, while  the  purchases,  sales,  and  stock  of  hay  and  feed  are  recorded  in 
one  account,  called  "  Hay  &  Feed."  Study  the  two  methods  and  be  pre- 
pared, when  the  exercise  is  finished,  to  discuss  their  respective  merits. 

Using  cash  book,  sales  book,  and  purchase  book,  a  journal,  and  a  ledger, 
record  the  following  transactions.  Use  rulings  employed  in  the  preceding 
exercises.  In  opening  the  ledger,  arrange  the  accounts  in  related  groups. 
The  proprietor's  accounts  (capital  and  private)  should  appear  first.  1  he 
record  of  things  with  which  the  business  is  carried  on,  such  as  Cash,  Real 
Estate,  Office  Furniture,  and  the  like,  may  follow.  Arrange  the  trading 
accounts  —  Stock  of  Coal,  Coal  Purchases,  Coal  Sales,  Hay  y  feed  — 
next.  The  expense  accounts  comprise  another  group,  which  may  be 
followed  by  the  Profit  ^  Loss  account.  Open  the  customers'  and  the  trade 
creditors'  accounts  last  in  separate  groups  and  on  separate  pages.  Give 
each  account  ten  lines  of  space.  No  cash  account,  however,  need  be  kept 
in  the  ledger  in  this  exercise. 

Feb.  15,  19 — 

William  Kingsley  began  a  retail  coal  business  with  a  cash  imestment 
of  5^6977.60. 

Lease  offices  and  coal  pockets  of  McKvoy  &:  Sons,  and  pav  rent,  in 
advance,  to  March   15,  in  cash,  )^ioo. 


RETAIL    COAL    BUSINESS 


93 


Buy  of  McEvoy  &  Sons,  on  account,  c}uantity  ot  coal  in  pockets,  in- 
ventoried at  50  T.  chestnut,  75  T.  stove,  and  10  T.  egg  coal    @  ^^5.40. 

Note.  —  This  is  not  a  purchase  in  xhv  usual  sense.     Charj^e  Stock  of  Coal. 

Pav  Ernest  Selkirk,  cash  to  repair  and  adjust  weighing  scales,  5^12.50. 

Pav  Ed.  Norton,  cash  for  team  of  dray  horses,  ^^425. 

Pav  \\  .  E.  Suiter,  cash  for  set  of  douhle  harness,  halters,  etc.,  J565. 

Note.  —  Classify  expenses  in  this  business  as  "  Dtlivcr\',"  "Offtcc,"  and  "  (k-neral." 
Distinguish  between  things  that  are  consunitil  in  one  use  and  things  of  longer  life.  1  he 
latter  are  insured  and  should  be  carried  in  sonic  property  account. 

Pav  the  Whitney  Wagon  Co.,  cash  for  two  delivery  wagons,  $g^. 
Pay   John   Mitchell,   agent,   preniiimi   on   insurance   policy,  $2500,   at 
^  %,  in  cash. 

Feb.  16 

Buy  of  the  Lehigh  Coal  Co.,  i  car  egg,  28.18  T.,  i  car  stove,  30.19  T., 
shipped  on  the  14th  inst.,  terms  10  days.     (Charge  Coal  Purchases.) 


Price  List 


Nut                   Egg 

Stove 

1 

Im  Bags 

Less  than 
5-TON  Lot* 

Buying  price  (f.o.b.  mines) 
Selling  price  (delivered) 

3  1  70    !         3 

7'         '         7 

so' 

3     50 

7 

7 

2^ 

7 

25 

Note.  —  In  some  localities  coal  is  bought  at  wholesale  by  the  long,  or  gross,  ton  of 
2240  lb.  and  sold  at  retail  by  the  short,  or  net,  ton  of  2000  lb.  In  other  places  the  short 
ton  weight  is  used  both  in  the  wholesale  and  the  retail  trades.  Cars  are  weighed  after 
loading,  and  the  weight  in  tons  and  hundredweight  (20  cwt.  =  i  T.)  is  shown  on  the  invoice 
and  freight  bill.  Fhe  two  denominations  are  separated  with  the  decimal  point,  but  the 
fraction  should  be  read  as  tivenlieths  and  not  as  te-nths  or  liinidredths.  lo  decimalize 
hundredweight,  divide  by  20,  thus:  I  cwt.  =.05  T.  ;  10  cwt.,  .5  T. ;  19  cwt.,  .95  I.  In 
weighing  coal  in  carload  lots,  fractions  of  a  hundredweight  are  disregarded.  All  coal  weight 
in  this  exercise  should  be  read  as  tons  and  hundredzveight. 

Pay  Edward  McGinn  cash  for  team  of  horses,  one  douhle  harness, 
and  hlankets,  ^435. 

Pay  the  Interstate  Railroad  Co.  cash  for  freight  hill,  2  cars  coal, 
59.17  T.  (Qj  ^2.40.      (Charge  inward  freight  on  coal  to  Coal  Purchases.) 

The  Municipal  Telephone  Co.  has  installed  a  telephone  for  the  use  of 
the  husiness.      Pay  service  to  March  i,  ^^4.50  in  cash. 

Note.  —  Hereafter  all  payments  will  be  made  in  cash,  unless  otherwise  stated. 


94  ACCOUNTS   AND    ACCOUNTING    PRACTICE 

Feb.  17 

l*.i\   Milton  Webster  for  stationery  and  oHice  supplies,  )^i8.50. 
Make  the  following  sales,  terms  cash  : 

Mrs.  Jane  Moore,  Cjrove  St.,  5   1.  stove. 

j.  \\  .  Brower,  Oak  St.,  5    I  .  nut,  5    V.  egg. 

ISert  Wilson,  Kndicott  Apartment,  10   1.  nut  in  hags. 

Board  of  Kducation,  High  School,  20  1.  egg. 

Note.  —  "Terms  cash"  does  not  mean  that  cash  has  been  received.  No  entry  should 
be  made  for  cash  received  or  paid  unless  there  is  a  direct  statement  to  that  effect.  All  sales 
will  he  made  "terms  casli  "  unless  otherwise  stated. 

Feb.  18 

Pay  George  Loeser's  bill  of  the  iqrh  inst.  for  horse  feed.  ,*^I5.65. 
(Charge  Delivery  Expense.) 

Buy  of  John  M.  Reuter  &  Co.,  terms  cash,  i  car  1  choice  timothy 
hav,  182  bales,  weighing  21458  lb.  (a  ^23.50  a  ton.  1  his  hay  is  bought  for 
the  use  of  the  business  and  for  sale.  (Charge  Ilay  <J  Feed  account  in  the 
journal.      See  note  above.) 

Receive  the  following  checks  for  sales  of  the  17th  inst.:  J.  \\  . 
Brower,  Bert  Wilson. 

Feb.  19 

Make  the  following  sales: 

Malcolm  Andrews,  15  T.  stove. 

John  \  opelak,  3    \.  nut. 

().  S.  Davidson,  10  [\  nut. 
Mr.  Kingslev  appropriates  at  cost  price  10  bales  hay  for  horse  feed, 
weight  1385  lb.     Which  account  receives  value.'     Gives  value.'' 

Feb.  20 

Pay  postage  and  petty  expenses,  y^3.75. 
Pay  McEvoy  &  Son  for  account  of  the  15th  inst.,  ^729. 
Buy  of  the  Lehigh  Coal  Co.  2  cars  chestnut,  weighing  43.14  and  44.18  T., 
respectively,  terms  10  days. 

Pay  wages  of  John  Stuber  ^^13. 50,  E.  Shacher  ^15. 
Pay  Wm.  Jackson,  bookkeeper,  ^13. 

Feb.  22 

Make  the  following  sales: 

n.  (loldschmitt,  10  T.  nut. 
Wm.  Kahn,  5    1.  nut,  5    1.  stoxe. 


RETAIL    COAL    BUSINESS  95 

Mrs.  Heiir\'  Carroll,  3   V.  nut. 
Municipal  l,i<iluin{:;  Co.,  25  T.  egg. 
T.  Sulli\aii,  I    1  .  nut.  111  hags. 
Receive  checks  as  follows  tor  sales  of  19th  inst. :    Malcolm  Andrews, 
|t)lin  \'optlak,  C).  S.  Davidson. 

Feb  23. 

Send  Chicago  draft  to   lohn  M.   Renter  &:  Co.  for  invoice  of  the  iSth 
inst.      (1  his  dratt  will  be  bought  at  the  local  bank.      Treat  it  as  cash.) 

Feb.  24 

Sell    Edward   McGinn    ^o  bales   hav,  weight   41S9  lb.,   ©;  $i/>5    a   C. 
(Credit  Hay  &  Feed.) 

Remit  New  ^'ork  draft  to  the  Lehigh  Coal  Cn.  for  iinoict-  of  the  i^)th 
inst. 

Pav  the  Interstate  Railroad  Co.  freight  on  2  cars  coal,  8.H.12  1  .   (</  /2.40. 
(See  transaction  of  i6th  inst.) 

Buv  of  John  M.  Renter  &:  Co.,  i  car  clipped  white  oats,  test  38  lb.,  net 
weight   56000  lb.,  1750  bu.    @  S^.j^,  terms  documentary    draft    at   sight. 
Freight  ig^  per  C.     Pay  freight  and  sight  draft  in  cash. 
Make  the  following  sales  : 

R.  M.  Brownlee,  5  T.  nut. 
R.  L.  Burton,  10  T.  nut,  10  T.  stove. 
Mrs.  Mary  Jennings,  2  T.  nut  in  bags. 
Lars  Anderson,  7   V.  egg. 

Feb.  25 

Receive  cash  and  checks  as  follow's  for  sales  of  22d  inst. : 

H.  Goldschmitt,  Mrs.  Henry  Carroll,  \\  ni.  Kahn,  W  Sullivan. 

Feb.  27 

Pay  wages  : 

John  Stuber,  ^13.50;    E.  Schacher,  ^i;,  Ciustav  Olsen,  ^7.50. 
Sell  James  Andrews  10  bags  oats  (r»  j^i.65.      11  bag  weighs  70  lb.) 
Mr.  Kingslev  appropriates  2000  lb.  oats  for  horse  feed,  at  i<Kt. 
Pav  llendrickson  &:  Soper  horseshoeing  bill,  ^^3.50. 
Receive  cash  and  checks  for  sales  of  24th  inst. : 

Lars  Anderson,  R.  L.  Burton,  Mrs.  .\Liry  Jennings, 

Feb.  28 

Pay  Milton  Webster  for  account  books,  ^^12.55. 
Make  the  following  sales  : 


96  ACCOUNTS   AND   ACCOUNTING    PRACTICE 

MuUfi  6c  Miller,  10  T.  egg, 

\\  hitraker  &  Co.,  8  T.  stove. 

Frank  Bcnias,  5   I  .  nur  in  hags. 
Receive  cash  aiul  checks  as  follows  : 

Municipal  lighting  Co.,  account  of  226  inst. 

Frank  Hernas,  acct.  28th  inst. 

W'hittaker  &;  Co.,  acct.  2Sth  inst. 
Buy  of   1  he  .Middlestates  Coal  Co.  2  cars  stove  coal,  weighing,  respec- 
tively, 42.7  and  44.9   v.,  terms  cash. 

Pay  the  Interstate  Railroad  Co.  freight  on  2  cars  coal,  86.16  («  ^^2.40. 
Pay  the  Standard    Fypewriter  Co.  for  typewriter,  )^ioo. 
Pay  petty  expenses,  ^^8.75. 

Post  and  rake  a  trial  l-talance.      Prepare  a  trading  account,  profit   and 
loss  account,  and  halance  sheet,  and  close  the  ledger. 
Inventories  : 

Stock  of  coal,  ^1099.40. 

Hay  and  feed  stock,  ^1226. 

Horse  feed  unconsumed,  ^35. 

Prepaid  insurance,  $12.     Une.xpired  rent,  $50. 

All  other  assets  at  book  value. 

CLOSING  THE  LEDGER 
Procedure 

Journalize  the  closing  entries  in  the  following  order: 

1.  Carry  forward  to  March  the  coal,  and  hay  and  feed  inventories: 

Stock  of  Coal 

• 

Hay  and  Feed 

Stock  of  Coal 
Hay  and  Feed 

Iii\  i-nrorics  carried  ro  March. 

2.  Carry  forward  the  unconsumed  items  charged  to  the  expense 
accounts,  ^'ou  will  in  each  case  credit  the  Februar\'  account  and  dehit 
the  March  account  tor  the  value  February  passes  to  March  ;  therefore,  post 
the  credit  items  to  the  old  accounts  and  rule  them  off.  Post  the  debit 
items  underneath  the  rulings  after  the  old  accounts  are  closed.  Master  this 
procedure,  as  all  asset  inventories  are  disposed  of  in  the  same  way,  when  an 
account  is  closed,  a\m\  tor  the  same  reason. 

3.  Credit  Stock  of  Coal  and  charge  Coal  Sales  with  the  cost  of  coal  sold. 

4.  Transfer  the  balances  of  Coal  Salts  and  Ilay  ^  fttd  to  Profit  is'  Loss. 

5.  Transfer  the  balances  of  expense  accounts  to  Profit  if^  Loss  and  rule 
off  the  accounts. 


March  Acct. 


RETAIL   COAL    BUSINESS 


97 


6.  Transfer    the    balance    of    Profit  i^   Loss    to    William     Kin^sley's 
private  account.      Foot  aiul  rule  the  Profit  l^  Loss  account. 

7.  Transfer  the  balance  of  the  Private  Account  to  the  Capital  Account^ 
and  close  the  latter  account.      Foot  and  rule  all  accounts  that  balance. 


Trading  Account 


Coal  purchases 

for  tht*  period 
Inward  freight      . 

Deduct  inven- 
tory 2/28 

Cost  of  coal  sold 
Balance    carried 
down 

Balance,  gross 
profit,  carried 
to  Profit  &: 
Loss  account 


1 

XXX 

XX 

1 
I 

XXX 

XX 
XX 

XXXX 

xxxx 
xxxx 

XX 

XX 

XXX 

XX 

xxxx 

XXX    XX 
XXX    XX 


.S.lli    .    ...  ■   1. 1 1 

the  period 


XXXX    XX 


Balance     bro't 

down 
Hay    &     Feed, 

gross  profit 


^  XX 

XXX  XX 

XX  XX 

XXX  XX 


The  Trading  account  is  sometimes  opened  and  operated  in  the  led}2;er. 
In  this  exercise  you  may  set  up  the  Trading  account  on   a  separate 
sheet  of  ledger  paper. 


QUKSTIONS 


2.   What  is  the  cost  of  coal 
4.   \\  hat  IS  the  gross  proHt 


I.  What  is  the  cost  of  coal  bought? 
unsold.  3.  \\  hat  is  the  cost  of  coal  sold  .' 
from  coal  sales  .'  :;.  W  hat  is  the  gross  profit  per  cent  based  on  the  cost 
price  :  6.  What  is  the  gross  profit  per  cent  based  on  the  selling  price  ? 
7.  Answer  these  same  questions  with  reference  to  hay  and  feed.  8.  What 
accounts  in  \()ur  ledger  answer  the  first  four  questions  with  reference 
to  coal  .'  9.  Does  your  ledger  answer  these  questions  with  reference  to 
hay  and  feed  ?  10.  Mow  should  the  hay  and  feed  transactions  be  recorded 
to  show  these  results:  if.  Are  these  results  of  sufficient  importance  to 
justif\'  the  extra  labor  mvolved  '      Show  why. 

P R A cr I c V.   \i X I- R c I .s i: s 

The  work  of  the  following  exercises  is  to  be  done  on  loose  journal  and 
ledger  paper. 


98 


ACrniNTS   AND   ACCOUNTING   PRACTICE 


I.  Piter  J.  Hensler,  a  hardware  dealer,  buys  for  cash,  Feb.  4,  19 — ,  15 
kegs  4d  nails  (g  )52.30  per  keg.  leb.  7  he  sells  tor  cash  5  kegs  @  ^3.25; 
Feb.  9,  4  kegs  («  ^^3.25.  ia)  What  is  the  cost  of  the  nails  unsold  '  (//)  What 
is  the  cost  of  the  nails  sold  :  (c)  What  profit  results  from  the  nails  sold, 
provided  incidental  expenses,  which  are  paid  in  cash  Feb.  S,  are  ^^4.25  ? 
The  bookkeeper's  method  of  showing  a  complete  accounting  ot  these  trans- 
actions follows. 

Peter  J.   IIinsler,  Capital 


19— 

Feb. 


10 


Present  Capital        V  38    80 

3s     So 


Profit 


Present  Capir; 


Cash 


Nails,  Stock  Accolnt 


.9 

19- 

Feb. 

4 

I 

.14 

>4 

50 

^0 

!  Feb 

19— 

Feb. 

1  I 

Inventory 

\ 

1  ; 

v,-^ 

10     Inventory 
10     Sales  acct. 


I 

34 

50 

I 

4 

'O 

»  ^ 

s.  -, 

38  I  80 


19- 

1 
1 

1 

K; 

1 

Feb. 

4 

34    50 

Feb. 

4 

I 

34     50 

7 

I 

16    25 

8 

I 

4 

iS 

9 

I 

^.3  75' 

10 

Balance 

V 

2> 

1  .  ; 

19 

Feb. 

1  I 

Balance 

V 

^^1       1 

\ 

1 3    80 
20  j  70 

;4    ;o 


19— 
Feb. 


10 
10 


Stock  acct. 
Profit  &  Loss 
acct. 


Sales 


19 

20 

70, 

Feb. 

7 
9 

s 

^ ' ; 

_  •% 

1 

29  '  2!; 


PRACTICE    EXERCISES 


99 


Expense 


19— 

Feb. 

8 

I 

4 

25 

19— 

10 

Profit  &:  Loss 

— ^__ 

1 



1 

acct. 

»              4 

2? 

1 

Profit  &  Loss 

iq— 

II 

1 

Lo 

II 

Feb. 

10 
10 

F^xpense  acct. 
P.J.  Hensler, 

'              4 

2? 

Feb. 

10 

Sales  acct. 

I               8 

55 

iKt  |irofit 

'               4 

.10 

8 

SS 

8 

^   ^ 

A  filial  stattnuiit  ot  ownership  would  include  the  cash  on  hand  and  the 
unsold  nails,  as  follows  : 

Balance  Sheet,  Feb.  10,  19 — 


Cash 
Nails 


•%  — 

13 

80 
80 

1 

38 

1 

1'.  Hensler.  In- 
vestment 34 
P.  Hensler,  Profit       4 
Capital 


50 
30 


This  record  shows  (i)  that  Peter  J.  llensler's  ownership  ieh.  4  was 
^^34.50  in  cash  ;  (2)  that  his  ownership  Feb.  10  is  ^^38. 80,  consisting  of  6  kejis 
of  nails  valued  at  ^13.80,  and  ^25  in  cash;  (3)  that  there  has  been  an  in- 
crease in  values  of  ^^4.30,  which  we  call  "  profit  ";  (4)  that  this  profit  is 
derived  from  the  sale  of  9  kegs  of  nails,  costing  ^^20.70,  for  ^^29.25,  at  an 
expense  of  ^^4.25. 

2.  Lewis  Fairchild  is  a  newsboy  who  has  a  cash  capit.il  ot  ,^i.  During 
the  week  l^eginning  .\Lirch  10  (current  year)  he  bought  225  copies  of  the 
Chicago  Tribune  («  i  c,  and  35  copies  of  the  Saturday  E:r?iinf:  Post  (ff)  3^^. 
He  made  sales  for  cash  as  follows,  the  Tribum's  bringing  2C  and  the  I^osts  ^i 
each  : 

March  II,  :;o  Tribunes;  NLirch  12,  28  Tribunes:  NLirch  13,  33  Tri'^ 
7/«rj,-.  ALirch  14,29  Tribunes  and  1:  I'osts;  NLirch  i;,  4=;  Tribunes  and 
8  Posts:  NLirch  16,  54  Tribunes  and  12  Posts.  llis  incidental  expenses 
during  the  week  for  car  fares,  etc.,  were  57c.     Assuming  that  the  papers 


lOO 


ACCOUNTS    AND    ACCOUNTING    PRACTICE 


unsold  were  worthless,  find  (a)  the  cost  of  the  papers  sold,(/^)  the  sellinji  price 
of  the  papers  sold,  ic)  the  gross  profit,  and  id)  the  net  profit.  What  profit 
per  cent  was  made  on  the  tribunes  i"  On  the  Posts}'  What  was  the  net 
profit  per  cent  on  the  investment  : 

Show  the  foliowmji;  accounts  closed:  Lewis  Kairchild  (Investment), 
Purchases,  Stock  of  Papers,  Sales,  Kxpense,  Profit  &  Loss,  and  Cash. 

3.  Joseph  lackson,  a  dealer  in  grain  and  feed,  huys  Oct.  l,  19 — ,  lOO 
bales  hay  («  ^y  Oct.  10  he  sells  20  hales  (</  ^4  ;  Oct.  i  5,  30  hales  (</  ^^4  ;  ( )ct. 
18,  15  bales  («  $\.  During  the  time  from  Oct.  i  to  iS  he  has  used  7  hales 
for  feed.  Assume  that  all  purchases  and  sales  are  for  cash,  and  that  inci- 
dental expenses,  which  are  paid  Oct.  16,  amount  to  ^512.50. 

Ihe  following  is  the  Stock  account : 


Stock  of  Hay 


19— 

Oct. 

I 

Purchases 

2    1 

300 

Oct. 

18 

Inventory 
Feed  acct. 
Sales        " 

84 

19 

Inventory 

II 

300 

1 

;oo 

Oct. 

84 

Show  all  the  other  accounts  involved:  Joseph  Jackson  (Investment), 
Cash,  Sales,  Kxpense,  Pr(jfit  &:  Loss.      Show  the  Balance  Sheet  Oct.  18. 

\\  hat  was  the  amount  of  Joseph  Jackson's  ownership  Oct.i  ?  Of  what 
did  it  consist  .'  What  was  his  ownership  Oct.  18  .'  Of  what  did  it  consist  .' 
I  las  there  been  an  increase  or  decrease  of  v:ilues  }  An  increase  or  a  decrease 
in  ownership  ?  ( )n  which  side  of  the  ledger  are  values  entered  ?  On  which 
side  is  ownership  entered  .'  \\  hat  accounting  term  includes  all  \alues  : 
If  goods  costing  ^400  are  sold  for  v^500,  and  cash  is  received,  how  much  of 
this  represents  value  increase  t     1  low  much  the  origin:il  investment  .' 

In  summarizing  assets,  is  any  distinction  made  between  original  invest- 
ment and  income  on  the  investment  .'  Referring  to  the  preceding  exercise, 
what  was  the  amount  of  ownership  before  the  goods  were  sold  .'  After  tlu- 
goods  were  sold  :  \\  hat  is  an  increase  in  ownership  called  :  ( )n  w  hich  side 
of  the  ledger  does  this  increment  appe:ir  .'  \\  hy  .'  W  hat  are  value  de- 
creases called  r  ( )n  which  side  of  the  ledger  are  they  found  .'  \\  hv  .'  .Xre 
they  separated  horn  otlu  r  items  r  It  so.  when  :  \\'li;it  disposition  is  niaile 
of  them  t 

Name  ten  different  articles  that  have  value.  ILnv  is  the  value  of  an 
article  determined:  I  Lis  (juantity  :inything  to  do  with  \alue  .'  How  is 
quantity  determined  .'     \\  h;it  else  enters  into  detirmiiKition  of  v;ilue  : 


■     •  ••^     •    . 

PRACTICE    EXERCISES  ••'  "•    •'    *• 


lOI 


If  a  business  man  lias  property  July  i  v:t(Ued  fit"  }^666d,  and 'properrv 
July  31  following,  valued  at  yijooo,  and  debts  amounting  to  ^^400,  wliat  lias 
happened  in  this  man's  business  experience  ?  \\  hat  is  the  source  of  proHt 
in  a  tradmg  busmess  ?  \\  hat  two  factors  are  mvoived  in  Hnding  proHt  r 
Using  figures  ot  your  own  mvention,  show  how  to  Hnd  the  cost  of  goods 
sold.      How  would  you  Hnd  the  gam  or  loss  per  cent  on  goods  sold  ? 

Define  the  loUowing  :  \  ahu',  ownership,  iiuestmeiit,  assets,  Ii.ibilit\, 
profit,  loss,  mventory. 

4.  from  the  tollowmg  (.lata  jirepare  accounts  of  Purchases,  Stock  of 
Cjoods,  Sales,  Expense,  and  ProHt  &:  Loss:  June  1  (current  year),  stock  of 
goods,  ^8765;  purchases  during  June,  ^4312.50;  June  expenses,  ^^325. 34; 
sales,  ^^6453. 20;   stock  of  goods  June  30,  ^^7658. 75. 

5.  Dec.  1  (current  year)  you  buy  200  bbl.  apples  (^\  ^2.75.  During 
the  month  of  December  you  make  the  following  sales:  Dec.  5,  10  bbl. 
(<i.  $T,.jy,  Dec.  12,  25  bbl.  @  ^53.75  ;  Dec.  23,  155  bbl.  ^r  ^3.50.  Dec.  23, 
vou  appropriate  the  remaining  2  bbl.  of  sound  apples  to  your  own  use, 
8  barrels  having  frozen  and  rotted.  Incidental  expenses  have  been 
,^75.60.  ia)  \\  hat  is  the  cost  of  apples  sold  :  (b)  If  you  charge  the  2 
bbl.  of  apples  to  yourself  at  cost,  what  has  been  your  proHt  .'  (c)  If  you 
charge  the  2  barrels  to  yourself  at  $3. 50  per  barrel,  what  has  been  your 
profit  .'  Assume  that  all  transactions  have  been  settled  in  cash.  Open  and 
close  the  required  accounts.     Show  the  balance  sheet,  Dec.  23,  19 — . 

6.  Dec.  I,  19 — ,  you  are  employed  by  James  D.  Hewlett,  flour  and  feed 
merchant,  to  take  charge  of  his  books.  You  Hnd  the  accounts  in  Mr.  1  lew- 
lett's  ledger  show  the  following  differences : 


James  D.   Hi  w-ii-it,  Capitai. 


19 — 

Nov. 


J  000 


James   D.   HrwiFrr,   Private 


Nov.    I  ^^ 


50 

1    II 

1 

1 

1 

* 

1 

Cash 


D 


fC. 


2iq 

'    1         1                1          ' 

I02 


ALLULNTS    AND    ACOtLMlM.    PRACTICE 


19— 
Nov.    30 


Nov. 


19— 
Nov. 


19— 
Nov. 


30 


19— 
Nov. 


30 


PlRCH  ASFS 

I         * 

.   786 !  90 

ii         I 

Stock  of  Goods 
1650 j  75 
Sales 


19— 
Nov. 


30 


FuRNin  Ki    6:   Fixtures 


265 

II  I      111 

Expense 


1    .11 

'  7^  3  .=; 

1 

E.  A.    Barnes   &:   Co. 


19— 
Nov.    30 

i      i 

HiR\M    Kfnnfdv 


'3  5 

1      li  i 


967  40 


311    60 


I       II 


\Vli;ir  does  J.  D.  Hewlett's  capital  account  show:  When  is  the  pro- 
prietor's capital  account  credited  :      W  inn  is  it  debited  r 

\\li;it  does  ).  I).  IltwUtt's  |iri\ate  account  show'  Whin  is  this  ac- 
count debited  ?      For  what   is  it  credited  r 

What    tloi's  C^ash  account  show'      I'or  what  is  Cash    iKbitid  :      Cicd- 


PRACTICE    EXERCISES  IO3 

ited  ?  If  we  receive  ^962.50  and  pay  ^^747. 90,  the  dirtVrence  represents 
what  r  If  you  were  to  take  charge  of  the  cash  in  this  business  and  assume 
responsibihty,  would  nou  accept  this  cash  bahuice  without  verifying  it  ? 
How  would  you  verif\  it  : 

W  hat  dots  the  bahmce  ot  tlit-  Stock  of  Cjoods  account  represent  ?  Sales 
account  r  Purchase  account  r  What  items  arc  charged  to  Furniture  & 
Fixtures  r  1  o  Expense  .'  Do  items  charged  to  Expense  represent  value 
received  ?  Why,  tor  instance,  should  a  typewriter  be  charged  to  Ojjice 
Furniture,  while  the  wages  of  the  typewriter  operator  are  charged  to 
Expense?  What  is  the  essential  difference  between  the  following  species 
of  value:  A  hve-dollar  bill,  five  dollars'  worth  of  coal  to  be  used  as  fuel, 
five  dollars'  worth  ot  electric  current  used  for  light,  Hve  dollars'  worth  of 
tl(Hir  bought  to  be  sold,  an  ofHce  chair  costmg  H\e  dollars,  and  lliiain 
Kennedv's  promise  to  pay  Hve  dollars  ? 

\\  hat  dt)es  the  balance  of  E.  A.  Rarnes  &:  Co.'s  account  represent  ? 
What  does  that  of  Hiram  Kennedv  .'  What  class  name  do  we  apply  to 
those  to  whom  we  sell  goods  ?  \\  hat  name  is  given  to  those  from  whom 
we  buy  goods  ? 

lell  whether  the  following  accounts  should  ordinarily  show  a  debit  or 
a  credit  ditterence,  and  explain  why :  The  proprietor's  capital  account, 
Cash,  Stock  of  Goods,  Purchases,  Sales,  Furniture  &  Fixtures,  Expense, 
customers'  accounts,  trade  creditors'  accounts. 

In  taking  charge  of  Mr.  Hewlett's  books,  should  you  test  the  accuracy 
of  the  former  bookkeeper's  work  .''  How  may  this  test  be  made  ?  ^'ou 
may  copy  the  foregoing  ledger  accounts  on  ledger  paper,  gi\ing  to  each 
account  eight  lines'  space,  and  test  the  accuracy  of  this   ledger. 

If  the  ledger  is  apparently  correct,  proceed  to  make  entries  of  the 
following  transactions,  using  sales  book,  purchase  book,  cash  book,  and 
journal.     Open  the  cash  book  with  the  cash  balance  of  Dec.  i,  19 — . 

Dec.  I.  Pay  E.  \\  .  Scott  cash  for  a  (juantity  of  stationery  for  office 
use,  ^15.30. 

2.  Buy  of  E.  A.  Barnes  &  Co.,  terms  net  30  days,  600  bu.  oats  (g  40  (* ; 
()00  bu.  corn    @  65  ^. 

3.  Sell  Harvey  Jerome,  terms  5  days,  100  bu.  oats  (q>  51  c;  150  bu. 
corn    @  77  C ;    10  T.  #  i  timothy  hay    (o  ^^24. 50. 

5.    Receive  of  Hiram  Kennedy  his  check  for  ^^135,  m  full  of  his  account. 

5.  Pay   j.  D.  Hewlett  ^^25,  personal  drawings. 

6.  Pay  the  C.  B.  &:  Q.  Railroad  weekly  freight  account,  ^^15.75. 

Note. —  Fhis  item  is  for  frcinht  on  purchases,  lalUtl  *'  Inwanl  fni^lit,"  or  "  JTiinlit 
inward."  It  should  be  charged  to  an  account  of  that  name  and  closed  into  Purchases  at 
the  end  of  the  period,  or  charged  direct  to  Purchases,  as  it  is  a  part  of  the  cost  of  goods 
bought.      In  this  exercise  you  may  debit  Purchases  for  freight  inward  items. 


I04  ACCOl'NTS   AND   ACCOUNTING   PRACTICE 

6.   Pay  \va{;es  of  employees  for  the  week,  ^35. 
6.    Pay  postage  and  petty  expenses,  ^^3.65. 

6.   Sell  B.  A.  Manion,  terms  Jan.   i,  2    F.  ground  feed  @  $35;   S  M^l- 
flour   («.  $6.50;    5  T.  §  1  timothy,  $2\. 

6.  Charge  E.  A.  Barnes  &  O).,  with  ^^17  for  hags  returned  to  him. 
8.   Sell  Hiram  Kennedy,  terms  Jan.   i,  200  hu.  corn    («.  65  c. 

8.  Receive    ot     Harvey    Jerome,    to    apply    on    invoice    of    the    5th 
inst.,  $100. 

9.  Pay  E.  A.   Barnes  6:  Co.,  to  apply  on  account,  ,^311.60. 

10.  Pay  W  alter  Chave,  December  rent  of  premises,  ^^65. 

11.  Buy  of  the  Central  States  Grain  Co.,  terms  30  days,  150  hhl. 
patent  flour   («.  i56.6o. 

12.  Pay  for  office  supplies  and  petties,  $1.75. 

13.  Give  B.  A.  Manion  credit,  y^53.50,  for  hags  returned  hy  him. 
13.    Pay  the  C.  B.  &:  O.  Railroad,  weekly  freight  account,  ,^37.40. 
13.   Pay  wages  of  employees  for  the  week,  ^35. 

Determine  the  cash  balance,  close  the  cash  book,  and  carry  the  balance 
forward  to  Dec.  14.  Close  sales  and  purchase  books,  and  post  all  books. 
Take  a  trial  balance,  Dec.  13,  and  close  the  ledger. 

Inventories:  Stock  of  goods,  ^^2955. 35.  L  ne.xpired  rent,  one  half 
month,  ^^32. 50.  Cash,  Furniture  &  Fixtures,  and  book  accounts  at  book 
value. 

Below  are  the  assets  and  liabilities  of  James  D.  Hewlett  Dec.  13,  19 — ■. 
Find  .Mr.  Hewlett's  capital  Dec.  13.  Comparing  this  capital  with  Mr. 
Hewlett's  capital  Nov.  i,  what  do  you  conclude  has  been  the  progress  or 
decline  of  the  business  ?  Prepare  a  trading  and  profit  and  loss  statement 
that  will  account  tor  the  profit  01  loss  ot  the  business  since  Nov.  i. 

Assets  and  liabilities  of  James  D.  Hewlett  Dec.  13,  19 — . 

Assets:  Cash,  $4.55;  Accounts  Receivable,  ^^482. 50;  Stock  of  Goods, 
J^-955-35'  lurniture  &:  Fixtures,  ^265;  Unexpired  rent,  ,^32. 50.  Lia- 
bilities:    Accounts    Payable,   ^^1603. 

7.  .\ssume  that  the  items  comprising  the  following  accounts  of  cus- 
tomers and  trade  creditors  are  settled  on  their  respectne  discount  dates, 
and  make  the  re(]uired  cash  book  entries.  Copv  the  accounts  on  a  sheet  of 
ledger  paper.  Open  additional  accounts  with  Purchase  Discount,  Sales 
Discount,  and  Cash.  Close  and  jiosr  the  cash  book,  and  take  a  trial 
balance. 

The  columns  in  the  cash  book  are  ruled  for  the  following  headings  : 

Left  page,  Suiulries,  Sales  Discount,  Net  Cash;  right  page,  —  Sun- 
dries, I^irchase  Discount,  Net  Cash.  Purchase  discount,  when  taken,  is  a 
credit  item;    sales  discount,  a  debit  item. 


19—  I         I 

May       1  y  i  cash 

10  net  lo  days 

15  2%  cash 

23  i  i/s 


PRACTICE    EXERCISES 

Henry  J.  Colburn 


lO! 


John   W  .  Ham.mund 


Wyckoff  &  Co. 


/ 

490 

8 

450 

ro' 

365 

1 1 

1 

118 

7S 
1 

Grouse,  Egbert  &  Co. 


19 

May 

14 

18 
27 

Helena,  Mont. 


19 

1 

1 

—"^ 

May 

2 
10 

25 

28 

2/  10  n   10 

3/5        '' 

3%  cash 

7| 
8 
12 

1 

345 

^50 

3^5 
400 

70 

i 

1 

lllLSVlLLL,    1*A. 


19 

May 

5 

9 

18 

20 

3/10  n  '60 
i<         it 

net  cash 
3/10  n/60 

10 
10 

1-5 
68 

250 
9(. 

80 
75 

1 

1 

Herkimer,  N.  Y 


Tacoma,  Wash. 


i/io  n/30 
Net  cash 


i)        11^     50 
10         90 1 
I  ;        ■?  00  ' 


Emerson  &:   Hoicih 


M. 


New  Orleans,  I. a. 


- 

3%  cash  n   jo 

S 

165 

50 

ly 

10 

n9 

21 

<<         <<       << 

I  1 

245 

60 

23 

Net  cash 

I  1 

1 

;  4  - 

CREDIT    INSTRUMENTS 
Notes  and  Drafts 

1  he  ultimate  purpose  of  all  business  undertakings  is  to  convert  goods  or 
services  into  money.  This  exchange  of  things  for  money  is  sometimes 
completed  in  one  transaction,  when  the  entry  becomes  Cash  (Dr.),  SaUs  (Cr.  i. 

\\  hen  credit  is  given  and  payment  is  deferred,  two  entries  are  neces- 
sary to  complete  the  exchange ;  namely,  Customer  (Dr.),  Sal^s  (Cr.J,  and 
Cash  (Dr.),  Customer{Cr.). 

When  the  customer  gives  his  note  or  acceptance  in  settlement,  there 
are  three  steps  in  the  process;  namely,  Customer  (Dr.),  Sales  (Cr.),  NoUs 
Receivable  (Dr.),  Customer  (Cr.),  and  Cash  (Dr.),  Notes  Receivable  (Cr.K 


Notes  Rfti  i\  *'i  f 


Dcbited    when    we    receive    the    written 
promise  of  another  to  pay  money  - 
notes  and  acceptances  in  our  favor. 


Credited  : 

I.    At  maturity. 

I.    When  redeemed  (paid). 
1.    When  renewed. 

(a)    By     new     promise     t(» 

cover  old  promise. 
{b)    By    part     payment    in 
cash  and  renewal  for 
balance. 
3.    When  dishonored  (not  paid). 
{a)   Involving  protest  fees. 
(Jb)   Not  involving   pf^"--  *-t 
fees. 
II.     Before  maturity  (converted). 
I.    When  d'  'd. 

z.    When    t;.   .  ;-;red   to   st  rrlr    .t 

debt. 
3.    When    the    maker    or    drawee 
becomes  insolvent,  suspends 
payment,  or  assigns 


Because  of  the  fact  that  notes  and  acceptances  are  often  disposed  of 
before  maturity,  often  involve  an  interest  item,  and  are  sometimes  not  met 
at  maturity  and  have  to  be  charged  back  to  the  customer,  the  subject  calls 
for  special  study.  I  he  following  problems  are  given  for  that  purpose. 
Ihe  solution  of  these  problems  will  be  much  simplihed  if  the  student  will 


CREDIT   INSTRUMENTS 


107 


keep  in  mind  the  fact  that  the  customer's  account,  and  that  of  notes  receiv- 
able, are  intervening  steps  in  the  process  of  exchanging  goods  for  casli ; 
that  when  the  contract  ot  sale  is  completed,  these  items  are  canceled, 
with  a  resulting  entry  of  Cash  (Dr.),  Sales  (Cr.).  If  interest  becomes  in- 
volved, this  must  be  treated  as  an  entirely  separate  transaction  ;  namely, 
the  purchase  or  sale  of  the  right  to  use  money.  This  does  not  nuaii  that 
interest  necessarily  should  be  adjusted  in  a  separate  entry.  It  does  mean 
that  interest  is  a  property  right,  just  as  separate  and  distinct  from  notes 
as  notes  are  distinct  from  money  or  goods. 

Jan.  2,  19 — .  Sell  i3enjamin  Baker  merchandise  valued  at  ^^400, 
Baker  to  give  his  30-day  note  in  settlement. 

1  his  transaction  would  result  in  the  following  charge  to  Baker's  account: 

Benj.\min   Baker 


19 

Jan. 

-» 

N    R  30  da. 

11 

I  nn 

T 

1 

Jan.  5,  19  —.     Receive  of  Benjamin  Baker  his  30-day  note,  dated  Jan.  2, 
for  mvoice  of  that  date,  ^400. 


No. 


H^ 


~~e=:^-^^^J^^  ^'^^--rT? ^^i^  ..-T^^ 


the  order 


wr-;gy--.. 


Value  received,  at  the    .. 


Cincinnati,  Ohio, 


n 


19 


^.^-^^.^-T^.^^^    . 


I  promise  to  pay  tu 


.Dollars 


The  above  promise  differs  from  that  which  a  book  account  miplics  in 
that  it  is  yiegotiable.  If  the  Hnancial  standing  of  Ilalpin  or  Baker  is  good, 
the  holder,  Halpin,  may  discount  it  (sell  it)  at  his  bank  and  receive  cash 
or  credit  for  the  proceeds.  (lood  account  keeping  distinguishes  that  for 
which  there  is  a  certain  demand  at  a  Hxed  price  -  "  quick  "  or  "  current 
assets —  and  that  which  can  be  converted  only  as  a  cash  customer  is  tt)und. 
Assets  range  in  their  convertible  (juality  all  the  way  from  cash  itself  to  those 


io8 


ACCOUNTS   AND   ACCOINTING   PRACTICE 


fixed  properties  of  :i  business,  such  as  office  furniture,  plant,  machinery, 
etc.,  which  are  required  for  use  and  will  not  be  sold  unless  the  business 
winds  up  its  affairs.  Fixed  assets  are  profit-earning  agencies  of  the  business, 
and  are  just  as  necessary  in  the  conduct  of  its  affairs  as  convertible  assets; 
but  money  funds  must  be  all  the  time  available  to  meet  current  obligations 
and  maintain  the  credit  standmg  of  the  business. 

Notes  Receivable 

The  universal  purchasing  and  debt-paying  power  of  money,  and  its 
near  equivalents,  distinguishes  it  as  an  asset  of  tin  highest  rank.  Hanks 
are,  ordinarily,  cash  customers  for  all  good  commercial  paper;  and  because 
this  paper  is  a  step  nearer  cash  in  the  process  of  converting  goods  into  money, 
it  is  rated  as  a  better  kind  of  asset  than  a  mere  book  account,  and  is  accord- 
ingly recorded  in  a  separate  group  of  items  under  the  caption  XoT/'.s 
RlT.Eir.lBLK.  A  "  notes  receivable  "  may  therefore  be  defined  as  the 
negotiable  promise  of  another  to  pay  us.  \  his  promise  does  not  legally 
cancel  tlu*  debt.  riie  effect  of  giving  a  negotiable  promise  to  pay  only 
suspends  the  remedv  for  the  debt  until  the  maturity  of  the  new  promise; 
but  we  credit  the  giver,  because  he  has  given  us,  from  a  business  standpoint, 
a  more  desirable  form  of  value,  and  debit  Notes  Receivable,  thus: 


19— 
Jan. 


2  I  N  R  30  da. 


Benjamin   Baker 


400 


1 

19 

Jan. 

2 

Note  30  da. 


400 


19 

Jan. 


H 


tiij. 


liakci 


Notes  Receivari.e 


400 


The  source  of  items  on  the  left  side  of  the  Notes  Receivable  account  is 
the  journal  (or  notebook,  when  such  a  book  is  kept).  1  he  following  would 
serve  as  the  original  entr\'  of  the  leceipr  of  Baker's  dote. 


Notes  Receivable 

Benjamin  Baker  1 

Ki(.ii\t.tl    i)f    Binj.    I?nktr    liis    jo-cl.iy    non-  ! 
pa\:ihlr     at     tin-     0>ntiiu-ntal     Nar'l     liank, 
Cincinnati,    .tikI    daritl    Jan.    1    for    in\ .    of 
that  date,  ^^400 


400 


400 


ILLUSTRATIVE    TRANSACTIONS  lOQ 

The  same  situation,  from  an  account  keeping;  standpoint,  would  have 
risen  if  Halpin  had  drawn  a  draft  on  Baker  and  Baker  had  accepted  it, 
thus 


Nn     2-/,^  -^ ^*^>  V  Louisville.  Ky., 


the  order  of 


This  is  a  kind  of  letter  addressed  by  Halpin  to  Baker,  asking  the  latter 
to  pay  "  Myself  "  (Halpin)  the  amount  stated  at  the  time  specified.  Ikiker 
promises  to  pay  by  writing  across  the  face  of  the  paper  the  word  Ac- 
cepted^ the  date,  where  payable,  and  his  signature.  This,  like  the  note, 
is  Baker's  written  promise  to  pay  money,  is  negotiable,  and  on  Halpin's 
books  would  be  entered  under  the  title  "  Notes  Receivable."  A  note  is 
a  direct  promise  to  pay,  wiiile  a  completed  draft  is  an  accepted  request  to 
pay,  called  an  "  acceptance."  The  debit  side  of  Notes  Receivable^  then, 
records  the  receipt  of  the  negotiable  promises  of  other  persons  in  our  favor. 

Illustrative  Transactions 

Exercise   14 

Assuming  that  you  are  the  proprietor  and  bookkeeper,  journalize  the 
following  transactions  and  w  rite  a  concise  explanation  of  each  entry. 

1.  Jan.  5,  19 — .  Receive  of  Richter  &  Roche  their  30-day  note  payable 
at  the  Pan-American  Bank,  dattd  Jan.  3  for  invoice  of  that  date,  )5i67.50. 
W  ritf  the  note.     (Use  places  of  your  own  selection  in  this  exercise.) 

\<iTE.  —  In  business,  negotiable  instruments  are  always  made,  signed,  accepted,  and 
indorsed  by  the  several  parties  thereto.  In  this  work,  however,  you  will  he  required  to 
perform  the  functions  of  all  these  parties,  in  order  to  give  you  practice  in  making,  han- 
dling, etc.,  such  instruments,  thereby  enabling  you  to  become  familiar  with  their  various 
forms.  In  business  or  private  life  you  should  never  sign  another  person's  name  without 
having  prf)per  authority  to  do  so,  for  then  you  would  be  committing  forgery. 

2.  Jan.  6,  19 — .  Receive  of  Curtis  &  Collins,  to  apply  on  account, 
A.  M.  Wolfson's  2-months'  interest-bearing  note  dated  Dec.  15,  payable  at 


no 


ACCOUMS    A.ND    ALLULMi.NG    I'KACTICE 


tlu-  l^aiik.  of  tlif  Republic,  ^300.  Ht)w  do  you  accjuire  the  ri^lit  to  a  note 
pa\  able  to  Curtis  &:  Collnis  :     \\  rite  the  note  and  the  nidorsement. 

3.  Jan.  8,  19 — .  McCreary  &:  C\».  have  accepted  your  60-day  draft 
payable  at  the  Golden  Gate  National  l^ank,  ^^372. 60,  to  apply  on  account. 
Draft  dated  Jan.  2,  accepted  Jan.  5.  Write  the  dr:;ft,  payable  to  Myself, 
and  the  acceptance. 

The  one  making  the  promise  to  pay  is  called  in  a  note,  the  "  maker  "  ; 
in  an  acceptance,  the  "  drawee."  1  he  one  to  whom  a  draft  or  a  note  is 
made  pa\  able  is  called  the  "  payee."  The  one  who  writes  the  draft,  or 
requests  the  payment,  is  called  the  "  drawer." 

How  manv  parties  are  there  to  a  draft  r  How  many  to  a  note  ?  Name 
the  payee  in  the  note  of  Richter  &:  Roche  in  the  first  transaction  above. 
Name  the  maker.  Who  is  the  maker  of  the  note  received  from  Curtis  &: 
Collins,  dated  Dec.  15?  Name  the  payee  of  this  note.  The  drawer  and 
payee  of  your  draft  on  McCreary  &  Co.  above  are  combined  in  one  person. 
Who  is  the  drawt  i-payee  ?  Who  is  the  drawee  ?  Name  the  parties  to  the 
followini:   paper. 


No. 


'Detroit,  Micf^ ^ 


'^z:zz. pay  to 


the  or^er  of. 


Vilve  received,  and  charge  to  the  account  of^^  ^  y 


S2JLL 


Dollars 


^<^ 


"^aU  ^t..^^  2!^  ^J' 


■^L^r-r:/..^..-1>i.^i>^.y^L. 


6ri<i 


NoTi:.  Whenever  the  name  "Richard  Halpin"  appears,  the  student  will  substitute 
his  own  name. 

Define  a  draft.  \\  hat  is  an  acceptance  .'  Define  a  promissorv  note. 
Define  notes  receivable.      \\  hen  is  Notes  Receivable  account  #  debtor  .' 

Our  next  inquiry  relates  to  the  circumstances  under  which  Notes 
Receivable  may  become  credited.  1  he  oiu  rhinii  that  distinguishes  Notes 
Receivable  from  personal  accounts  receivable  is  the  negotiable  qualitv  of 
the  value  which  Notes  Receivable  represents,  and  which  whollv  ceases  and 
terminates  at  the  maturity  of  the  paper.  No  bank  would  take  a  note  or 
dralt  tor  discount  after  maturity.  It  follows  then  that  past  due  paper 
should  not  be  calKd  "  Notes  Receivable."       The  life  of  the  paper  is  the  life 


ILLUSTRATIVE    TRAXSACTIOXS  III 

of  the  account  which  nuisr  hv  clivestetl  of  and  credited  for  its  lioldinjjs, 
at  or  before  tlie  due  date  of  tlie  paper,  the  receipt  of  which  this  account 
records. 

Negotiable  paper  may  or  may  not  draw  interest.  The  following  trans- 
actions do  not  involve  interest  calculations.  .Make  and  explain  the  re- 
quired entries. 

4.  Aug.  5,  19 — .  Receive  of  Oliver  Courtney  his  2-months'  note, 
dated  .Aug.  i,  payable  at  the  Second  National  Hank,  :f>(y^O,  for  m\'oice  ot  that 
date.      W  rite  the  note. 

5.  Oct.   I,  ic) — .     Oliver  Courtnev  paid  his  note  due  to-day,  ^6-:,o. 

6.  Aug.  4,  n;  Receive  of  I  .  \\  .  llom  his.  30-day  note,  dated  Aug. 
4,  payable  at  our  oHice,  for  nixoice  of  that  date,  ,^325.50. 

NoTF.  —  An  entrv  of  the  receipt  of  a  negotiable  paper  .sIkuiIcI  show  the  date,  amount, 
and  duration  of  the  paper,  from  whom  received,  for  what  received  and  where  payable. 

7.  Aug.  7,  19 — .  O.  F.  Sheppard  accepts  our  60-day  draft,  payable 
at  the  Bank  of  Commerce,  St.  Louis,  Mo.,  in  full  settlement  of  his  account, 
^450.  Draft  dated  Aug.  4  and  accepted  Aug.  6.  Write  the  draft,  and  the 
acceptance. 

8.  Sept.  3,  19 — .  T.  W.  Horn  renews  his  note  of  .Aug.  4,  due  to-day, 
by  giving  us  his  15-day  note,  dated  to-day,  and  payable  at  the  Chemical 
National   Bank,  $325.50.     Write  the  note. 

9.  Sept.  18,  19 — .     T.  W.  Horn  pays  his  note  due  to-day,  $325.50. 

Note.  —  When  a  written  promise  to  pay  is  redeemed,  the  holder  writes  across  the  face 
Puiil,  the  date  and  his  signature,  and  returns  the  paper  to  the  maker,  or  drawee,  as  the 
case  may  be. 

10.  Oct.  5,  19 — .  O.  F.  Sheppard  remits  his  check  for  $250  and  his 
30-day  note  for  $200,  to  take  up  his  acceptance  due  to-day.  1  his  note  is 
dated  Oct.  5  and  is  payable  at  the  Third  National  Bank.  W  rite  the 
note. 

11.  Oct.  7,  19 — .  Give  Thomas  Watson,  O.  V.  Slupp.ird's  30-day  note 
of  the  5th  inst.  to  apply  on  account,  $200.  Write  across  the  back  ot 
this  note,  left  end.  Pay  to  the  order  of  Thomas  fFatson,  (yt)ur  own  name), 
and  pass  the  note  to  Mr.  Watson. 

NoTi;.  —  .A  writing  on  the  hack  is  called  an  "indorsement."  I  he  foregoing  is  a  "special 
indorsement,"  or  an  "indorsement  in  full,"  and  is  made  to  transfer  the  title  of  the  paper 
to  Mr.  Watson.     See  Indorsements,  page  ic>6. 

12.  The  following  account  on  your  books  is  settled  ni  accordance  with 
the  terms  indicated  in  the  wide  column;    make  the  recjuired  entries. 


112 


ACCOUNTS    AND    ACCOUNTING    PRACTICE 


19— 

Ally. 


8     N/  K  2 


'5 

20 


30  da. 
60  da. 


l)l       \\  I  I"I      Sill  "^ON     ^-     Co. 


1^ 

-^(>7    7> 

17 

360 

"ll 

250    25 

1 

No.  /<JJ~ 


_k-r_-^    J^-^;^;227- 


Valuc  received,  at  the  Western  National  Bank. 


Denver,  Colo. 


19. 


-t^ after  date -ii'Si^  promise  to  pay  to 


A 


7-r- 


'/  I       . 


/? 


Dollars 


'-(T 


No. 


Chicago,  III.,  ^  ^  J-. 


'V 


.■^,^i^JC<i/ 


the  order  of 


^72  z. 


Value  received,  and  charf;i'^o,^pfy  account 


19 


_  .'.  ■  ■l<'-f^^  (a.. 


:.  zA^£^^. 


pay  fo 

^ZUTZ—  Dollars 


13.  Aii^.  21,  19 — ,  Remit  Charles  Bettis,  St.  Louis,  Mo.,  to  apply 
on  our  account,  De  Witt  Stilson  tV  C\>.'s  notv  of  Srii  inst.,  ^567.75.  W  rite 
the  recjuired  indorsement. 

Sept.  I,  19 — .  Leave  at  the  l^ank  ot  Ilhnois  for  collection  De  Witt 
Stilson  &  Co.'s  acceptance  of  the  I5tli  of  August.  Should  you  part  with 
this  paper  without  gettinc;  a  receipt  ? 

14.  Sept.  iS,  K)  The  Bank  of  Illinois  reports  acceptance  of  De  Witt 
Stilson  &  Co.,  due  the  14th  inst.,  returned  unpaid.  Is  a  dishonored  promise 
to  pay  any  longer  Notes  Receivable  .'  Charge  the  note  hack  to  Stilson's 
account. 


INTEREST    AM)    DISCOUNT  II3 

15.  Sept.  20,  19 — .  Receive  of  IX  Witt  Stilson  &:  Co.  their  check 
for  )^i6o  ;iiul  their  1  5-cl;iy  note  for  i^200.  to  cover  their  dishonored  uiept.mcu 
due  the  14th  inst.      Note  is  dated  Sept.  14. 

16.  Oct.  5,  i(>  .  Remit  the  Western  National  liank,  Denver,  ^^567. 75, 
to  take  up  I)e  \\  itt  Stilson  vS:  I'o.'s  note  of  .\n^.  8. 

This  action  i.s  taken  upon  leceivinji;  word  that  De  Witt  Stilson  &  Co. 
have  failed.  The  note  is  payable  at  the  Western  National  Hank.  When 
we  sent  this  note  to  Charles  i^ettis,  St.  Louis,  we  indorsed  it,  and  therehv 
made  ourselves  conditionally  liable  to  Hettis  :ind  to  subse(iuent  holders 
for  its  payment.  1  he  condition  is  that  the  holder  at  maturitv  presents 
the  paper  where  it  is  made  payable  and  ^ives  prompt  notice  of  non-pa\!iient. 
We  know  that  De  Witt  Stilson  &  Co.  cannot  meet  this  note;  that  .Mr. 
Bettis,  and  perhaps  others  to  whom  he  ma\  h.i\e  t  r.msferreil  tin-  paju-r, 
will  be  put  to  trouble  and  inconvenience;  that  ultimately  we  shall  have  to 
meet  the  cost  of  protest  and  notice;  and  th;it,  in  a  w.i\,  Stilson  ^-  Co.'s 
failure  to  pay  reflects  upon  us.  \  o  avoid  the  e.xpense  and  protect  our  credit 
and  business  reputation,  we  remit  the  amount  invoKed  to  the  Western 
National  Bank,  with  inscructicMis  to  return  the  note  to  us.  When  this 
paper  is  returned  to  us,  is  it  still  Notes  Receivable  .'     What  entrv  ? 

17.  Oct.  5,  19 — .  When  notice  of  Stilson  &  Co.'s  assij^nment  reaches 
us,  we  have  their  note  of  Aug;.  20  at  60  days,  ^^250. 25,  and  their  note  of  Sept. 
14  at  15  days,  ^200.  What  disposition  should  be  made  of  this  paper  on 
our  books  ^ 

18.  On  a  sheet  of  ledger  paper  open  an  account  with  De  W  itr  Stilson  & 
Co.,  enter  the  charges  shown  on  page  1 12,  and  post  all  items  of  a  later  date 
belonging  to  this  account.  Is  gnmg  a  note  payment  or  the  suspension  of 
payment  r 

19.  Oct.  30,  19 — .  De  Witt  Stilson  &:  Co.  of  I^enver  have  reached  in 
agreement  with  their  creditors  to  settle  on  the  basis  of  ^06  on  the  dollar. 
Receive  their  30-day  note,  dated  Oct.  27,  and  indorsed  by  Stevens  Brothers 
of  Denver,  for  ^^509,  in  full  settlement  of  their  ;iccount.  Wiiti-  the  note 
and  the  indorsement.  Is  this  note  Notes  Receivable  .'  Why  '  What 
should  be  done  with  the  balance  of  Stilson  &:  Co.'s  account  .' 

The  preceding  transactions  had  to  do  solely  with  non  interest-bearing 
paper.  We  have  now  to  study  tr;ms;ictions  involving  mtiicsr  and  discount 
Items. 

Interest  and  Discount 

A  debt  dr.iws  interest  (l)  when  there  is  an  ;igreement  to  |iay  interest, 
and  (2)  after  the  due  date  of  the  debt.  I  In-  difference  between  ;in  interest- 
bearing  and  a  nonintcrest-bearing  paper  is  that  the  former  includes  the 
words  "U'ilh  interest  while  the  latter  makes  no  mention  of  interest,  or  contains 
the  words  without  interest. 


114 


ACCOUNTS   AND   ACCOUNTING    PRACTICE 


Interest  is  a  tenipor:ir\  right  to  the  use  of  money.  Tliis  ri^iht.  Hke 
all  other  rights,  is  actjuired  h\  purchase  and  disposed  ot  by  sale.  1  he 
right  to  another's  services  we  call  "wages,"  "labor,  "  or  "salary";  the 
right  to  use  another's  building,  "  rent  ";  the  right  to  ride  on  a  railway 
train,  "transportation,"  or  "car  fares";  to  have  our  goods  earned, 
freight,  "  or  "  e.xpress  ";    to  use  the  mails,  "  postage,"  etc. 

Confusion  often  arises  in  the  minds  of  students  of  business  because 
they  fail  to  make  a  distinction  at  the  beginning  between  the  right  to  use 
money  and  the  cash  with  which  that  right  is  purchased  and  paid  for. 
M()ne\  IS  fcislt.  Debts  draw  interest  after  they  become  due,  and  intenst 
IS  a  charge  for  deferred  payment.  In  other  words,  interest  is  the  ditter- 
ence  between  the  cost  of  present  and  future  cash.  If  you  hire  your  neigh- 
bor's horse,  the  value  of  the  work  done  by  the  horse  is  value  received,  the 
\  alue  ot  the  money  paid  tor  that  work  is  value  given  ;  one  is  a  debtor,  the 
other,  a  creditor.  ^Ou  must  regard  interest-bearing  debts  as  viom-y  at  work. 
Your  iiioneN  working  for  some  one  else  earns  you  something;  another's 
money  working  for  you  costs  you  something.  That  which  earns  or  gives 
value  is  a  creditor;  that  which  costs  or  receives  value,  a  debtor.  If  you 
buy  the  right  to  use  another's  money,  debit  that  which  you  buy,  interct, 
but  credit  that  which  you  pay,  usually  cash.  If  you  sell  the  right  to  use 
your  own  money,  credit  that  which  you  sell,  interest;  but  debit  that  which 
you  receive  in  payment,  usually  cash.  Discount  is  the  purchase  or  sale  of 
the  advance  payment  of  a  debt,  that  is,  interest  paid  in  ad\ance.  1  here  is 
no  reason  why  interest  and  discount  should  not  be  included  in  one  account. 

20.  Assume  that  the  following  ledger  accounts  are  settled  in  accordance 
w  ith  the  terms  indicated  in  the  wide  column.  The  paper  of  Ward  6c  Helligas 
IS  noninterest-bearing,  all  other  paper  is  interest-bearing.  Make  the  re- 
quired entries. 


Ward  &  Helligas 


19— 
Oct. 

13 

21 

Draft   I   mo. 
"      6ocla. 

1 
16        325 

•7        455 

50 

# 

W^Hi:  FLOCK 

&  Co. 

19 
Oct. 

7 

25 

Note  2  mo.  6  ' ,' 
*'     90  da.    " 

i 

1 

»5        45^' 
18.      .1^5 

7':> 
40 

1 

BANK    DISCOUNT 


US 


|.    6v:    M.    \\i)Ri:\vs 


IQ— 

Oct. 


4  :  Note  30  da.  6  '  ,       14 


13 


mo. 


i 

Howard    I.ambkrson 


.Nov. 


:::     Note  30  da.  6 

:<;  *'    10  da.     ■ 


-4 
^5 


iSo 
.:oo 


21.  Nov.  3,  19 — .  J.  ^  M.  Aiulrc'ws  pay  tluir  note  ofOct.  4  due  t<>-day, 
$350.  Have  they  had  rlu- usf  otOuinioney  ?  H()\s  loiij;  r  What  docs  this 
cost  them  at  6^i  .'  How  iiuich  does  it  earn  u.s  :  Is  Interest  a  debtor  or  a 
creditor:      Make  the  entry. 

Bank    Discount        Procedure 

In  ci)nipurinii;  discount  on  interest-bearing,  or  noninterest-beaiing, 
notes  receivable,  proceed  as  tollows  : 

1.  Find  the  maturity  vakie  of  the  paper  what  the  paper  will  \  uld 
in  casii  at  the  due  date. 

2.  Kind  the  date  of  maturity. 

^.  Kind  the  difference  in  time  (exact  number  of  days)  between  the 
date  the  paper  is  discounted  and  the  date  of  maturity,  called  the  "  term 
of  discount." 

4.  Compute  the  interest  on  the  maturity  value  for  the  term  ot  discount. 
Deduct   the  interest  for  the  term  of  discount   from    the   maturity 
The  difference  will  be  the  cash  proceeds        the  cash  received. 

-   of  the 


value. 


paper 


Kind  the  ditterence   between  the  cash  proceeds  and  the    '     -   ' 
which  is  the  discount. 
Entry:   (a)    Debit  Cash  for  the  cash  received. 

{b)  Credit    Notes    Receivable    for    the  face   of    tlu     paper, 

because  Notes  Receivable  has  piven  v.ihn 
(c)  Debit  or  credit  Interest  ;jv:  Discount  for  the  diHerence 
between  the  cash  proceeds  and  the  face  of  the  paper. 
If  the  cash  received  exceeds  the  face  of  the  paper, 
interest  has  earned  somethinj:.  and  should  be  credited  ; 
if  the  cash  received  is  less  than  the  face  of  the  paper. 
interest  has  cost  sonuthinn.  and  should  In-  debited. 
22.  (Kf.   17,   !•>  Discount  Ward  &:  llclli^.is"  draft  of  Oct.   13.  and 

receive  credit  at  vour  bank  for  the  proceeds.      Make  the  entry. 

Write  the  draft  on  Ward  ic   llilhgas,  covering  the  item  of  Oct.    13. 


ii6 


ALLULMS    AND   ACCOUNTING    PRACTICE 


In  tlu-  transaction  ot  CXt.  17  the  maturity  value,  5^325,  is  the  face  of  the 
paper;  date  of  maturity,  Nov.  13;  term  of  discount,  27  days;  interest  on 
maturity  value,  27  days  (3.25  ^  2  =  1.625  —  i  10  of  itself  =  i  .46),  i?l.46; 
$325  — ^51.46  =)^323.54,  cash  proceeds,  and  the  amount  for  which  Cash  is  a 
dehtor.  Notes  Receivable  is  a  creditor  for  face  value.  Interest  has  cost 
i^i.46,  and  Wf  have  the  entry. 


17 


Cash 

1 

323 

54 

Interest  &  Discount 

1 

4'' 

Notes  Receivable 

Discounted  Ward  &  Ilcllipas'  draft  due 

11/13, 

27  da.,  6% 

1 

325 


Boston,  Mass., 


.19=^ 


the  order  of 


after  date  we  promise  to  pay  to 


.$JA. 


f)ottar<i 


Value  received,  at  the 
annum. 


_\  '"  '-  \'  y:>^//^^--  '  ccJSc^.svith  interest  at  L:  ^  per 


23.  Oct.  20,  19—.  Discount  \\  hetlock  &:  Co.'s  note  of  Oct.  7  at  the 
Garhcid  National  Bank  and  receive  credit  for  the  proceeds. 

Maturity  value  (^^456. 75,  plus  interest  on  this  amount  for  two  months 
at  6%,  $4.57),  ^^461. 32  ;  date  of  maturity,  Dec.  7  ;  term  of  discount,  48  days  ; 
interest  on  maturity  value  48  days  (.46132X8=3.69),  ^3.69;  ^^461.32  — 
$3  69  =5^457.63,  cash  proceeds. 


Kntrv  : 


20 


Cash 

Notes  Recenahle 

Interest  &:  Discount 

Discounted    note   of    Wlieeiocic    iv:    Co.,    due 
12/7,  48  da.,  6% 


!' 

1 

1 

457 

63 

456 

75 

88 

BANK    DISCOUNT  II7 

24.  Nov.  I,  19 — .  Discount  Wheelock  &  Co.'s  note  of  Oct.  25  and  re- 
ceive the  proceeds  in  cash.  Has  interest  cost  or  earned  sometliing  :  Find 
the  proceeds.      Make  the  entry. 

25.  Nov.  I,  19 — .  Discount  Ward  &  HelH^as'  draft  of  Oct.  21  and 
receive  the  proceeds  in  cash.  Assume  that  this  draft  has  not  hec-n  accepted, 
lind  the  proceeds  and  make  the  entry. 

Discountin<i  a  draft  before  the  acceptance  appears  on  its  face  is  not 
unusual.  A  prior  agreement  to  accept  amounts  to  an  acceptance,  and 
it  should  be  treated  as  a  Noll's  Receivable  when  the  paper  is  discounted.  No 
business  man  will  ofJVr  paper  for  discount  unless  he  feels  assured  that  it 
will  be  honored.  In  this  case  goods  were  sold  Ward  6>:  Helligas  on  terms, 
to  which  they  oi'  course  assent,  of  "  draft  60  days,"  which  amounts,  by 
implication  at  least,  to  an  agreement  to  accept  our  draft  when  presented. 
Moreover,  we  make  ourselves  contingently  liable  for  the  amount  of  the  draft 
when  we  indorse  it  to  the  bank.  If  we  are  discounting  a  large  number  of 
customers'  bills,  this  contingent  liability  should  be  shown,  which  would  be 
impossible  unless  all  items  of  this  sort  are  put  through  the  Notes  Receivable 
account. 

Note.  —  Many  banks  will  not  receive  an  unaccepted  draft  for  discount,  except  when 
such  draft  is  employed  in  a  C.  O.  D.  sale,  and  is  accompanied  by  bill  of  lading  and  docu- 
ments necessary  to  give  the  bank  a  lien  upon  the  goods  in  transit. 

26.  Dec.  I,  19—.  Discount  Howard  Lamberson's  note  of  Nov.  22  at 
the  Bank  of  Commerce  and  receive  credit  for  the  proceeds.  Has  interest 
cost  or  earned  something.'  Write  the  note.  Find  the  proceeds.  Make 
the  entry. 

27.  Oct.  14,  19 — .  Discount  J.  &  M.  Andrews'  note  of  Oct.  4  and  re- 
ceive cash  for  the  proceeds.      Find  the  proceeds  and  make  the  entry. 

The  student  should  apply  to  an  entry  involving  bank  discount  the  fol- 
lowing tests  :  First,  has  cash  been  received  or  paid  ;  second,  has  interest  cost 
or  earned  the  business  something;  third,  is  our  promise  or  some  one  else's 
promise  to  pay  involved  .'  Interest-bearing  promises  to  pav  us  will  yield 
more  than  the  face  value  if  discounted  at  any  time  between  their  date 
and  the  date  of  maturity.  If  we  have  held  an  interest-bearing  promise 
any  length  of  time,  interest  must  have  earned  us  something.  On  the  other 
hand  a  noninterest-bearing  paper  is  worth  its  face  only  at  maturity.  If 
we  dispose  of  it  before  maturity,  it  must  yield  less  than  its  face  value; 
interest  must  have  cost  something. 

28.  Oct.  27,  19 — .  Discount  J.  &  M.  Andrews'  note  of  the  13th  inst., 
and  receive  credit  at  the  Bank  of  Commerce  for  the  cash  proceeds.  Make 
the  required  entry. 

29.  Dec.    I,    19 — .      Discount    Howard    Lamberson's    note    of   Nov.    29 


Il8  ACCOUNTS    AND   ACCOUNTING    PRACTICE 

and    receive  cash    for  the  proceeds.       Has   interest    cost   or  earned    some- 
thing .'      Make  the  entry. 

30.  Dec.  8,  19 — .  Send  Howard  Laniberson  our  check  to  take  up  his 
note  of  Nov.  29,  ^200,  which  tails  due  on  the  i;th  instant. 

I  his  note  was  discounted  at  our  bank  Dec.  i  and  will  he  protested  on 
the  9th  it  Lamherson  tails  to  meet  ir.  I  his  will  injure  Lamherson's  credit 
and  reflect  upon  us  as  well.  He  has  written  us  that  he  cannot  meet  the 
note  and  asks  tor  an  extension,  which  we  have  granted. 

Charge  l.amherson,  not  A'otts  Ri-ceivablr,  with  the  amount  of  vour  re- 
mittance. 

31.  Dec.  10,  19 — .  Receive  of  Howard  Lamberson  his  15-day  note, 
dated  Dec.  9,  for  i^200,  in  accordance  with  the  arrangement  e.xplained  above. 

32.  Receive  of  John  I..  Willard  the  following  note: 


Nn    1  fC?  Seattle,  Washington, 


.19. 


the  order  of Z. 


O-T^^^^  / Lxi aiter  date,  for  value  received,  I  promise  to  pay  to 

' ^  ^  '^^"^  ^  -■  ■  Dollars 


at  theZ^^^cC^kL^c  -  ---'.,  with  interest  atC?X~per  annum. 


May  10,  19 — .  Leave  Willard's  note  of  April  16  at  your  bank  for 
collection. 

33  May  19,  19 — .  ^'our  bank  notifies  you  that  John  I..  Willard's 
note  due  yesterday  has  been  returned  unpaid.  Is  this  any  longer  Notes 
Receivable  r     What  entry  t 

34.  April  19,  19 — .  Receive  of  Walter  Eddy,  Robert  Hrtiwnlee's 
30-day  acceptance,  ^^450,  to  apply  on  Kddy's  account.  Write  the  draft, 
dated  April  15,  the  acceptance,  dated  April  17,  and  the  indorsement.  M.ike 
the  required  entry. 

35.  April  20,  19  Receive  of  Henry  Hughes,  E.  J.  Phelps'  3-months' 
note,  dated  April  i,  for  ^300,  with  interest  at  6^,  to  apply  on  Hughes' 
account.  Write  the  note,  including  Hughes'  indorsement.  What  is  the 
present  value  of  this  note  ?  W  hat  account,  other  than  Notes  Receivable, 
has  received  value  and  must  be  charged  r  Note  that  interest  accrued  may 
be  an  asset  or  a  liabilit\ . 


NOTES    PAYABLE 


119 


36.  July  I,  19 — .  Phelps'  note  is  presented  for  payment,  payment  has 
been  refused  and  the  note  has  been  protested.  Piotest  fees,  ^^2.50.  Charge 
the  maturity  value  of  this  note,  and  fees  to  Hughes.  Has  interest  earned 
or  cost  soniethuig  ? 

37.  May  17,  19 — .  Rolnrr  Browiiki-  paid  his  acceptance-  due  to-day, 
J^450.      What  entry  ? 

38.  July  24,  19—.  Receive  ot  J.  11.  lnirn)n  6c  Co.  to  apply  on  account 
the    following   paper: 


No. 


.3A 


of  (  y^.^^ 


St.  Paul.  Minn., 


0.. 


-7- 


.19- 


the  order  of  (  y.^^.-.A~  CyL-'^'y^ ^^^..-r>i:?^}i  '^^t^ 

Value  received,  and  charge  to  thfe-^((^unb^f 
To 


pay  to 


-Dollars 


rvV®/ 


~C^i^^^Yi^*:i^.i^.*?-^Z-i>cyy. 


(l^^y:^/7/^.^J^.yy 


This  paper  shows  the  foUowmg  indorsements:  Pay  to  the  order  of 
J.  II .  Burton  y  Co.^  The  American  Trading  Co.  ;  Pay  to  the  order  of 
Richard  Ilalpin,  J.   II.  Burton  i^  Co. 

Where  is  the  market  for  paper  of  this  kind  ?  What  method  will  he 
employed  in  arriving  at  the  value  of  this  paper  July  24,  in  case  Richard 
Ilalpm  (student)  offers  it  for  sale  .'^  In  questions  of  value  the  market  is 
conclusive.      Find  the  proceeds  and  make  the  entry. 

Notes  Payable 

As  Notes  Receivable  is  the  written  promise  of  another  to  pay  us  money, 
"Notes  Payable"  is  o/<r  written  promise  to  pay  money  to  others  :  our  notes 
and  acceptances  in  their  favor.  In  the  foregoing  exercises,  that  which 
was  Notes  Receivable  to  us  was  Notes  Payable  from  the  standpoint  of  the 
other  party  involved. 

Notes   Payable 


Debited  when  our  written  promise  to  pa\ 
is  redeemed,  either  before  or  at  maturitw 


Credited  when  we  issue  (give)  our  written 
jiromise  to  pa\'  money. 


I20 


ACCOUNTS    AND    ACCOUNTING    PRACTICE 


39 

payable 
,^560. 


May  7,  19 — .     Give  Cooper,    I'ayloi    \    CO.   «»ur    2-nK)nths'  note, 
at  the  office  ot  the  Union    1  rust  Co.,  for  invoice  of  the  6th  inst., 


Cooper,   Taylor  &:  Co. 
Notes  Payable 

Gave  them  our  2-months'  note,  dated  May  '  , 
payable  at  the  Union  IVust  Co.,  to  covir 
invoice  5/  5,  55560. 


::6o 


;6o 


July  6,  19 — .      Pay  our  note  for  )^56o,  favor  of  Cooper,    lavlor  &  Co., 
which  is  now  due. 


Notes  Payable 
v/  Cash  (cash  book) 

Cooper,  Taylor  &  Co.'s  note  due 


q6o 


560 


40.  Assume  that  tlu-  tollowin^  creditors'  accounts  were  settled  in 
accordance  with  riu-  rerins  mdicated  m  rhe  wide  column,  copx"  the  accounts 
on  ledger  paper,  and  make  and  post  the  required  entries. 

Troy  Foundry  Co. 


I'/ 
May 

12 

N/P  3  months 

27 

650 

Jiiiu- 

7 

Draft  30  days 
N    1'  2  months 

225 

50 

Van   Dusi-n   ^-   Co. 


K 

Mav 


iiiit 


:4     N    I'  iq  days 
;  I      Draft  i  month 
1  "^     N    1*  2  months 


28 

725 

50 

29 

245 

31 

75 

In  the  above  exercise  assume  that  tlu-  notes  are  interest-bearing  (the 
dratts  aie  not),  and  write  the  note  of  Ma\"  12  fa\dr  Prox-  l*'oundr\'  Co., 
and  the  acceptance  of  May  31  favor  \  an  Duseii  &:  Co.  ("Ourselves"'  1  his 
draft  mav  be  written  Onr  month  ajlt'r  .si^^lit,  or  Om-  month  after  dale.  If 
written  "  after  sight,"  tlate  the  acceptance  May  31,  19 — ,  which  is  also  the 


ACCOMMODATION    PAPER  121 

date  of  the  draft ;   if  written  "  after  date,"  the  acceptance  may  be  dated  or 
not,  although  it  is  customary  to  date  all  acceptances. 

41.  Assume  that  tlu-  paper  issued  ahoNt-  was  redeemed  at  maturity. 
Compute  interest  on  the  mterest-bearmg  paper.  Make  and  post  the 
required  entries. 

42.  Jan.  12,  19 — .  Bu\'  of  E.  M.  Jennison  merchandise  invoiced  at 
^^324. 50,  and  give  your  30-day  note  m  settlement.  Make  two  entries: 
one  for  tiie  purchase  and  one  for  the  settlement. 

43.  Feb.  II,  19 — .  ^  ou  are  unable  to  meet  your  note  favor  E.  M. 
Jennison  due  to-da\'.  Give  a  new  30-day  interest-bearing  note  in  settle- 
ment.     Make  the  required  entry. 

44.  June  8,  19 — .  Prepay  \'our  3-months'  note  of  April  12  hist. 
Face  of  note,  ^^246. 50.  Find  the  proceeds  and  make  the  entry.  Ls  interest 
a  debtor  or  a  creditor  :      \\  hy  .'' 

Accommodation  Paper 

An  "  accommodation  note  "  is  one  given  without  consideration,  for  the 
purpose  of  loaning  the  credit  of  the  maker  or  indorser.  If  A  wished  to 
borrow  money  at  the  bank,  and  the  bank  required  him  to  secure  the  financial 
backing  of  a  responsible  person,  A  might  request  B  to  indorse  A's  note. 
A's  purpose,  however,  might  be  accomplished  in  several  ways.  First,  A 
might  make  his  note  payable  to  the  bank  and  ask  B  to  write  his  name 
underneath  A's,  or  on  the  back  of  the  paper.  Second,  A  might  draw  the 
note  in  B's  favor,  secure  B's  indorsement,  and  then  discount  the  note  at 
the  bank.  Ihird,  B  might  make  his  note  payable  to  A.  A  would  then  in- 
dorse it  and  discount  it  at  the  bank.  The  question  arises  as  to  the  proper 
entry  on  A's  books  in  case  the  third  plan  is  adopted. 


.^;z^/9^ 


i::l 


after  date    \Zt'^ promise  to  pay  to 


the  order  of  U/f  ~  ^^^Z^■t-^^...-^rCAl^-Z^ir■-^^^      .-,'  /     ^7^ ■  rtnlinr^ 

5  !  fr?  (P>^.  ( Signed ) --1& . 


From  W  standpoint  this  is  clearly  In  form  a  note  receivable.  B, 
however,  has  no  intention  of  paying  this  note,  which  is  given  solely  for  the 
accommodation  of  A.  Of  course,  the  bank  can  com|'>el  B  to  pay,  in  default  of 
.A  ;    but  A  cannot  enforce  payment,   aiul  wc  are  now  concerned  \s  ith  this 


122  ACCOUNTS   AND   ACCOUNTING    PRACTICE 

document  from  As  standpoint.      Is  it  a   fwte'  receivable  or  a  note  parable? 
Manifestly  it  is  a  note  payable  in  fact.     When  this  paper  is  discounted  bv  A, 
he  must  debit  Cash  and  Interest,  and  credit  Notes  Payable. 
Sight  Paper 

1  bus  far  we  have  considered  only  time  paper:  contracts,  or  promises 
to  pay  money  at  some  future  time.  Notes  are  sometimes  payable  "  on 
demand."  Such  a  note  matures  whenever  the  holder  presents  it  to  the 
maker  tor  payment.  Paper  payable  on  demand,  or  "  at  sight,"  is  also  put 
in  the  form  of  a  dralt.  1  he  more  common  forms  of  sight  paper  are  illus- 
trated below. 


No.^..L^^^ Fort  Worth.  TexM._64^-  f;  19  - 

ZIZZ pay  to 


the  order  of 


Dollars 


Value  received,  and  charge  to  tnc  account  of 


To  > '--'  ^z,  - 


Form  I 

This  form  is  called  a  "  sight  draft,"  and  when  used,  it  is  employed 
between  persons,  hrms,  and  corporations,  other  than  banking  institutions, 
but  it  is  now  rarely  seen  in  business. 


No    P-?  Qj  ^  Seattle,  Washington 

Northwestern  National   Bank 


Dollars 


To  Chemical  National  Bank 


icr 


onii  1 


SIGHT    PAPER 


12; 


This  form  is  called  a  "  hank  draft."  Althou2;li  the  words  at  sight  are 
not  emploved,  it  is  nevertheless  a  si<!;ht  draft.  It  ditttrs  from  the  first 
form  onl\  in  its  personnel;  hoth  the  drawer  and  drawee  of  a  bank  draft 
are  banking  institutions.  Drafts  on  New  ^'ork  hanks  are  called  "  New 
^Ork  drafts  "  ;  on  Chicago  banks,  "  Chicago  drafts,"  etc. 


So. 


7^ 


Chemical  National  Bank 


Pay  to  the  order  of  ^^ „_ 


/7 


-^^■r^^..ig^ff^^^.^7wr7:^ 


^.,?t/?^/i!^^^. 


'^£-< 


Cashier 


J 


Form  3 

This  is  the  sight  draft  of  the  cashier  upon  his  own  bank,  and  is  called  a 
"  cashier's  check."  Manifestly,  if  a  bank  in  a  large  money  center  is  asked 
for  a  draft  on  its  own  city,  it  will  issue  a  draft  upon  itself  rather  than  one 
upon  some  other  bank.  A  nonclearing-house  bank,  however,  will  some- 
times sell  drafts  on  a  clearing-house  bank  in  the  same  city.  Although 
there  is  nothing  to  prevent  anv  bank  from  issuing  cashier's  checks,  their 
chief  purpose  is  to  enable  banks  in  financial  centers  to  issue  and  redeem  their 
own  exchange. 


i)ort!)U3c5tcrn  i}ational  IBank 


Pay  I 


o  the  order  nf    /y/y.  //.  /f^^^^;^:^^. 


Seattle,   \\  n'^h  ,       (  '^^.^^    7     IQ  — 


i^^ 


Dollars 


Form  4 


Form  4  is  called  a  "  check,"  which  is  in  reality  the  sight  draft  of  a 
depositor  upon  his  hank.      It   differs  from  a  bank   draft  onlv  because  the 


124 


ACCOUNTS   AND   ACCOUNTING   PRACTICE 


drawer  is  an  iiuli\icliial  or  Hriii  and  not  a  bank.  Just  as  individuals  and 
Hrms  keep  moncN  on  deposit  in  a  local  bank  and  draw  drafts  checks) 
against  that  deposit,  banks  keep  money  on  deposit  in  other  banks  upon 
which  to  draw.  Practically  all  banks  in  the  United  States  will  sell  drafts 
on  New  ^  ork  or  Chicago  banks.  Usually  the  name  of  the  drawee  of  a 
check  is  printed  at  the  top  or  at  the  side,  but  occasionally  it  is  printed 
in  the  lower  left-hand  corner.  (See  form  5.)  This  is  merely  a  matter  of 
taste. 


.^.• 


No.    (^V/^ 


Pay  to  the  order 


To  Minnesota  Trust  Company     |  (^/'  '  /  '  ^    ^ •        — "/ 

76  si«ic  sircci  >  ^^^^^^/^^r7^''yr^tTr^^-c^^'->7^  A  ^ 

St.   Paul,   Minnesota  ) 


Sc.   Paul.   Minn.,    X',.  rfyfc^,  J.     19.r::- 

Dollars 


Form  5 

Form  5  is  called  a  "  certified  check."  1  he  bank  upon  which  it  is  drawn 
has  certified  that  the  drawer,  Franklin  Peabody,  has  a  sufficient  sum  of 
money  on  deposit,  and  the  bank  assumes  responsibility  for  payment  of  the 
check  when  presented  for  that  purpose.  Certification  is  much  the  same  in 
effect  as  the  acceptance  of  a  draft. 


No. 


J£^ 


Bay^  State  National  Bank 

if  Boston 


/\^^i 


payable  to  the  order  of . 

Certificate  properly  endorsed. 

Not  Subject  to  Check 


Boston.  Mass..  J,.  -^  ^ // IQ  — 

have  deposited  in   this   bank 
—     Dollars    $  'JT: 

on  the  stirrender  of  this 


-Cashier 


Form  6 

Form  6  is  in  effect  a  demand  note,  but  is  called  a  "  certificate  of  de- 
posit."    C\Trificarcs  of  deposit  are  fre(iuenrlv  made  payable  at  some  future 


SIGHT   PAPER 


125 


time,  and  iisuall\  draw  interest.  They  are  used  when  a  customer  wishes  to 
deposit  a  fund  for  safe  keeping,  or  as  an  investment,  and  does  not  wish  to 
draw  it  out  by  check. 

Otiier  forms  o(  sight  paper  are  the  "  express  money  order  "  and  the 
"  pt)stal  money  order."  An  express  money  order  is  the  sight  draft  of  one 
express  ofHce  on  another  of  the  same  company.  A  poijtal  money  order  is 
the  sight  draft  of  one  post  office  on  another,  l^ecause  of  certain  restrictions 
affecting  their  negotial^ihty,  and  rluir  cost,  these  forms  ot  exchange  are 
employed  in  business,  as  a  rule,  only  tor  small  amounts. 

A  sight  draft  calls  f\)r  the  payment  of  money  by  the  drawee  to  the  payee 
when  the  latter  presents  the  draft  to  the  former.  A  time  draft  calls  for 
the  payment  of  money  by  the  drawee  to  the  payee  at  a  specified  future 
time.  Follow  the  rule  with  which  you  are  already  familiar:  Debit  that 
which  receives  value;   credit  that  which  gives  value. 

The  drawee  of  a  sight  draft  gives  cash;  of  a  time  draft,  a  note  payable. 

The  payee  of  a  sight  draft  receives  cash;  of  a  time  draft,  a  note  re- 
ceivable. 

The  drawer  of  either  a  time  or  a  sight  draft  receives  value  of  the  drawee, 
and  gives  value  to  the  payee. 

Drafts  are  frequently  made  payable  to  the  drawer;  one  person  or 
firm  acts  in  the  capacity  of  both  drawer  and  payee,  thus: 


No. 


^ 


t/4t  sight  pay  to  the  order 


San  Francisco,  Ca\  -^?'^^.  2-/.    IQ — 

of     ( J^yf^^,-i>?/ 


'?.^~-<'^^ 


C-t^^-T'L^^^.^^^-^.^l^^y  f-^,. 


Value  received,  and  charge  the  same  to  account  of 


:l>)llars    $  2-i~<^.> 


(^ 


'  A:X^L 


Form  7 


It  is  very  common  practice  for  merchants  to  draw  on  delinquent  debtors 
and  pass  the  draft  through  the  bank  for  collection.  A  recjuest  of  this  kind 
IS  usually  more  eftectixe  than  that  ot  a  thinning  letter  as  a  means  of  col- 
lecting a  debt.  Frequentlv  there  is  an  understanding  between  debtor  and 
creditor  that  the  latter  shall  draw  on  a  certain  date.     Assuming  that  the 


126  ACCOUNTS    AND    ACt OINTING    PRACTICE 

draft  will  be  honored  on  presentation,  the  drawer  sometimes  deposits  it 
in  his  bank  and  receives  immediate  credit,  lianks,  however,  object  to 
givinj;  credit  for  out-of-town  paper  until  the  collection  is  reported.  \ 
transaction  involving  a  two-party  drah  should  offer  little  ditftculty  to  the 
bookkeeping  student.  Since  the  drawer  and  payee  are  combined  in  one, 
the  drawer  debits  himself  as  payee'  in  the  account  that  receives  value  — 
Cash  or  Notfs  Rrct'ivable  —  and  credits  the  one  who  gives  value,  the  drawee. 
Name  the  debtors  and  creditors  in  the  following  transactions: 

45.  Mav  2,  19 — .  Jarvis  Elliott,  BuHalo,  N.  ^  .,  draws  on  Henry 
Olds,  Detroit,  Mich.,  at  30  days'  sight  in  favor  of  the  drawer  for  the  amount 
of  Mr.  Olds'  account,  ^356.50.  Assuming  acceptance  May  5,  19 — ,  write 
the  draft   and  acceptance.     Give  {a)  drawer's  entry;    (h)  drawee's  entry. 

46.  Assuming  the  above  draft  is  drawn  "  at  sight  "  instead  ot  "  at 
30  days'  sight,"  give  {a)  Mr.  Elliott's  entry;    [b)  Mr.  Olds'  enrr\. 

47.  Mav  5,  19 — .  Henry  Olds,  Detroit,  remits  Jarvis  Elliott,  BuHalo, 
a  New  "\'ork  draft  for  JS356.50,  in  settlement  of  account.  What  entry 
would  appear  on  Mr.  Olds'  books.'  On  Mr.  Elliott's  books:  Where 
would  Mr.  Olds  procure  this  New  "\'ork  draft  r  Consult  form  2,  page  122, 
supplv  information  not  given,  and  write  the  New  York  drah  mentioned. 

48.  Receive  of  Taylor,  Cooper  &  Co.,  ( ).  M.  Howard's  60-day  accept- 
ance, i^iooo.  The  draft  is  dated  July  7,  19 — ,  accepted  July  9,  and  re- 
ceived by  you,  July  12.  Give  (a)  your  entry,  {b)  Taylor,  Cooper  &  Co.'s 
entry,  (r)  O.  .\E  Howard's  entry.  Assuming  the  draft  is  made  payable  to 
order  of  "  Ourselves  "  and  indorsed  by  Taylor,  Cooper  &:  Co.  to  you,  write 
the  draft  and  indorsement. 

Short  Exercises  Lnvolving  Merchandise  Discount 

The  following  short  exercises  call   for  the   use  of  journal,  cash   book, 

purchase  book,  and  sales  book,  as  books  of  original   entry,  and   a  ledger. 

Transactions  involving  merchandise  discounts   are  introduced.     Discount 

allozved  on  a  sale  is  a  debit  item.     Discount  taken  on  a  purchase  is  a  credit  item. 

Sales  discount  adjustments  are  involved  111  the  receipt  ot  money  from 
customers;  purchase  discount  adjustments  are  involved  in  the  payment 
of  money  to  trade  creditors.  It  is  therefore  convenient  to  handle  these 
items  b\-  running  a  sales  discount  column  on  the  left  page,  and  .1  jnirchase 
discount  column  on  the  right  page  ot  the  cash  book. 

Use  a  cash  book  ruled  as  follows  : 

Lfft  page: 
Date      '  F"o.  '      Accounrs  Cr.  I'.irticulars  Siintlrii-s 


Sales  Net 

Dis.  Dr.  Cash 


HARDWARE    AND   HOUSE    FURNISHING    BUSINESS 


12' 


Ri^kt  page: 

Date         ¥o. 

Accounts  Dr. 

Particulars 

1 

Su 

' 

1; 

Siindrit  s 


r.iid) 

Dis.  Cr. 


Net 
Cash 


\  lu'  tollowiii^  tonus  wil 
books. 


;ins\vt*r  rlu-  jniiposf  toi   rlu-  s;ilcs  ;iiul  piucliase 


Sai.ks   Rook 


Purchase  Book 


Date 


Fo. 


Trade  Creditors 


Particulars 


1-ch. 


lO 


Harrison  &  Co.,  2/10 

I  doz.  I.  C.  Kreezers 


Date 

Fo. 

CusTouT.Rs                           Particulars 

III   M 

^ 

Imv.  Value 

K)— 
Feb. 

■* 

Frank  l.ainlH-rt,  3    10  n   30 
:;   I'orc.  IJarli    lubs  (a   85 
I    Thatcher  Furnace 
I  F.  &:  W.  Range 

^55 

235 

«5 

50 

,     575 

i 

50 

Items 


i  Inv.  Value 


Use  tlie  ordmary  form  of  journal  for  opening  and  closint:;  entries,  and 
for  all  entries  not  otherwise  disposed  of. 


HARDWARE  AND   HOUSE  FURNISHING    BUSINESS 

Exercise   15 

Feb.  I,  19 — .  Andrew  Hopkins  began  a  hardware  and  house  furnish- 
ing business,  with  the  following  assets  acquired  by  purchase  from  James 
Curtis  :  Stock  of  goods  inventoried  at  $5370.50,  furniture  and  fixtures  valued 
at  )^2i5.70.      Mr.  Hopkins  also  invested  cash,  $200. 

2.  Sell  James  Phelps,  terms  2  5  n  30,  3  porcelain  bath  tubs  (o:  $140; 
I   Thatcher  tubular  furnace,  ,*<23;  ;    i  Fuller  &  Warren  range,  $45.50. 

4.  Buv  of  the  Standard  .Manufacturing  Co.,  terms  2  10  n  '30,  3  stand- 
ard vacuum  cleaners    ^   $65. 

5.  I'ay  the  News  Printing  Co.  for  blank  books  and  stationery,  $15.50. 


126 


ACCOUNTS   AND   ACCOl'NTING    PRACTICE 


6.  Sell  J.  H.  Weston,  terms  2    i  5,  4  Arctic  refrigerators    @  $16.50. 

7.  Receive  of  James  Phelps  for  invoice  of  the  2d  inst.,i?700.50,  less  2';. 
Enter  the  invoice  amount  in  the  Sundries  column;    the  discount    in 

the  Sales  Discount  column  ;  and  the  net  amount  in  the  Net  Cash  column. 
This  entry,  in  terms  of  debtor  and  creditor,  reads  :  Cash  6S6.4Q  (Dr. )y  Discount 
14.01  (Dr.)  James  Phelps  700.50  iCr. ).  Analyze  each  entry  involving  dis- 
count until  you  are  entirely  familiar  with  this  procedure. 

7.  Cash  sales  2d  to  7th  inst.,  inclusive,  ,^437.20. 

9.  Sell  .Marshall  6t  Thomas,  on  their  note  at  10  davs.  ;  doz.^'ale  locks 
@  $6.25;    2  doz.  bronze  butts    ^  $3.20. 

10.   Pay  postage,  telegrams,  and  petties,  $9.75. 

10.  Buy  of  Gilbert  &  Co.,  terms  2    10,  i  doz.  ice  cream  freezers   ^  ^^24. 

11.  Receive  of  Marshall  &:  Thomas  their  30-day  note,  dated  Feb.  9, 
for  invoice  of  that  date,  ^^37. 65. 

13.  Buy  of  Cleveland  &:  Co.,  on  account,  5000  ft.  wire  fencing  c^   ijc. 

14.  Indorse  Marshall  6:  Thomas'  note  in  full  to  Cleveland  &  Co.  and 
send  it  to  the  latter  to  apply  on  our  account. 

Write  the  note  and  the  indorsement. 

Note.  —  A  full,  or  special,  indorsement  is  one  that  specifies  the  indorsee,  thus: 
Pay  to  thf  order  of  Clevfland  If^  Co.,  (Signed)  Andrrx  Hopkins.  This  designates  Cleveland 
&  Co.  as  the  new  payee  of  the  paper;  and  if  the  note  should  become  lost  in  the  mails,  it 
would  be  worthless  in  the  hands  of  a  third  party. 

14.  Pay  the  Standard  Manufacturing  Co.  for  invoice  of  the  4th  inst., 
$195,  less  2^0. 

14.   Pay  wages  of  office  help  to  date,  ^65. 

14.  Cash  sales  for  the  week,  $150.20. 

16.  Buy  of  Smith  Brothers,  2  10  n/30,  5  porcelain  bath  tubs  @.  $97.50; 
2  Thatcher  furnaces  (a.  $175. 

18.  Andrew  Hopkins,  proprietor,  draws  $150  for  personal  use. 

19.  Pay  J.  C.  Adams  &:  Son  for  i  Standard  typewriter,  $105. 

20.  Pay  Gilbert  &:  Co.  for  invoice  of  the  10th  inst.,  $24,  less  2<~^. 

20.  Marshall  &:  Thomas,  w-hose  note  we  received  and  passed  to  Cleve- 
land &:  Co.,  have  made  an  assignment  for  the  benefit  of  creditor*^.  Cleve- 
land Sc  Co.  have  returned  the  note  for  credit. 

Charge  the  note  back  to  Marshall  &:  Thomas.  Failure  on  the  part  of 
a  customer  to  meet  his  obligations  should  show  in  his  account,  not  in  Notes 
Receivable. 

20.  Remit  Cleveland  fie  Co.  for  their  invoice  of  the  13th  inst.,  $75. 

21.  Receive  of  J.  H.  Weston  for  invoice  of  the  6th  inst.,  $66,  less  2*^;. 
21.    Pay  Albert  Gould,  salesman,  salary  to  date,  $54. 

21.    Pay  postage  and  petty  expenses  to  date,  $7.65. 
21.  Cash  sales  for  the  week,  $79.60. 


GROCERY    BUSINESS  I  29 

Close  all  books  of  orijiinal  entry,  post,  take  a  trial  balance,  prepare  a 
statement,  and  close  the  ledger.  Give  Sales,  Expense,  and  Profit  &  Loss 
seven  lines'  space;   all  other  accounts  five  lines'  space. 

Inventories:  Merchandise  stock  ^^5312,  fLirnitiirc  and  fixtures  at  cost. 
Cash  on  hand,  ^^921.65.  The  account  of  Marshall  5>:  Thomas  is  considered 
worthless. 

grocery  business 

Exercise   i6 

Richard  F.  Vale  is  in  the  grocery  business  June  i,  19 — ,  with  the  follow- 
ing assets  and  liabilities:  Cash,  $268.75;  stock  of  merchandise,  $5513.50; 
furniture  and  fixtures,  $365.  Customers'  book  accounts  considered  good  : 
H.  (J.  Wheelock,  $96.40;  Davis  k  Co.,  $136.  Note  of  R.  F.  Yale  favor 
R.  Moe  &:  Co.,  dated  May  21  at  30  days,  $230.  Accounts  with  trade 
creditors:  Ihe  Pacific  Grocery  Co.,  invoice  dated  May  23,  terms  3  10 
n  30,  $2^0;  Watson  Brothers,  invoice  dated  Mav  25,  terms  2  10  net  30, 
$236.75." 

Use  journal,  cash  book,  purchase  and  sales  books,  as  books  of  original 
entry,  and  a  ledger.  Employ  the  usual  form  of  journal,  sales  book,  and 
purchase  book.  The  cash  book  is  ruled  as  follows:  Left  page:  "Sun- 
dries," "  Sales  Discount,"  "  Sales,"  "Net  Cash  "  ;  right  page  :  "  Sundries," 
"  Purchase  Discount,"  "  Expense,"  "  Net  Cash." 

What  is  Notes  Receivable  ?  Notes  Payable  ?  When  is  Notes  Re- 
ceivable debited  and  when  credited  ?  When  is  Notes  Payable  debited  and 
when  credited  .'  Repeat  the  rules  for  debiting  and  crediting  sales  and  pur- 
chase discounts.  If  special  columns  are  employed  in  the  cash  book  for 
merchandise  discount,  on  which  side  should  the  sales  discount  column  be 
found  .'     On  which   side  the  purchase  discount  column  r     Why  ? 

Determine  Richard  F.  ^  ale's  capital  June  i,  open  the  ledger  in  ac- 
cordance with  the  data  given  in  the  opening  paragraph  above,  and  enter 
the  following  transactions  for  posting. 

June  2,  19 — .  Pay  the  Pacific  Grocery  Co.  for  invoice  of  the  23d  ult., 
$250,  less  3^;. 

3.  Buy  of  the  Pacific  Grocery  Co.,  terms  3/10  n  30,  10  ess.  gold  soap 
@.  $3.40;   450  lb.  mocha  coffee   @  24^^. 

4.  Richard   F.  ^'ale  invests  cash,  $100. 
4.  Cash  sales  ist  to  4th  inst.,  $230. 

4.  Pay  Watson  Brothers  for  invoice  of  the  25th  ult.,  $236.75,  less  2%. 

5.  Stll  Walter  Carr,  terms  2/5  n/30,  25  sacks  flour  @  70 (^,  150  lb. 
pearl  tapioca   (g.  34  C. 

6.  Buy  of  Smith  &:  Wesson,  terms  n  30,  60  bx.  Gordon's  codfish 
^  $2.50,  8  bx.  boneless  codfish    @.  $2.85. 


130  ACCOUNTS   AND   ACCOUNTING   PRACTICE 

6.    Pay  clerk  hire  to  date,  ^^46. 50;    postage  and  petties,  ^^5.75. 
6.   Cash  sales  5th  and  6th  inst.,  ,^S6.40. 

8.  Receive  of  H.  G.  \\  heelock  his  30-day  interest-hearing  note  dated 
June  4,  in  full  of  account,  ^^96. 40. 

9.  Discount    II.  (I.   W  heelock's  note  of  the  4th  inst.  at  the  People's 
National  i^ank  and  receive  credit  for  the  proceeds. 

Note.  —  In  many  -states  a  note  maturing  on  a  holiday  becomes  due  and  payable  the 
Hrst  business  dav  followinf;.  Follow  this  practice  in  discounting  the  notes  in  this  exercise. 
Notes  fallinK  due  on  Saturday,  because  of  the  half-holui;i  v  f'<T  hanks,  are  ordinarily  held 
without  protest  until  the  followinR  business  day. 

10.  Buy  of  the  Peerless   Truck  Co.,  terms  5    lO,  one  auto  truck,  ^^675. 

11.  Cash  sales  Sth,  9th,   loth,  ami    iitli  inst.,  ^^246. 

12.  Receive  of  \\  alter  Carr  for  invoice  ot  the  5th  uist.,  ^23.13,  less  2%. 

13.  Receive  of  Davis  &  Co.,  to  apply  on  account,  ^100. 
13.  Pav  clerk  hire  to  date,  {^46.50. 

13.    Pav  the  Pacific  Grocery  Co.  for  invoice  ot  the  ^d  inst.,  less  3%. 
13.   Cash  sales  I2rh  and  13th  inst.,  ^97. 50. 

15.    Receive  of  K.  V.  Graham  ^30  on  old  account,  which,  owing  to  Mr. 
Graham's  assignment,  was  charged  to  Profit  &:  Loss  Dec.  31  last. 

15.  Sell  A.  L.  Rogers  &  Co.  on  their  30-day  note,  25  bx.  mackerel  ^. 
^^1.90;    15  hhl.  flour  ((I  i?5.6o. 

16.  Pay  the  Riverside  Garage  for  account  of  the  loth  inst.,  10  gal. 
gasoline  (S.  16  ^.      (Charge  Delivery  Expense.) 

16.   Pay  B.  F.  Mott  June  rent  of  premises,  $100. 

16.    Pay  premium  on  fire  insurance  policy,  Edw.  Rice,  Agt.,  $15.50. 

16.  Pay  car  fares,  postage  and  petties,  $6.45. 

17.  I5uy  of  the  Southern  Grocery  Co.,  terms  cash,  less  3%,  600  gal. 
N.  O.  molasses   @  28^  ^;   250  gal.  P.  R.  molasses   (o-  32  ^. 

17.  Receive  of  A.  L.  Rogers  &:  Co.,  their  30-day  note  dated  June  15, 
for  invoice  of  that  date,  $131.50. 

17.  Cash  sales   i5rh,   i6th,  ami    i7rh  inst.,  $275. 

18.  Pav  the  Southern  Grocery  Co.  for  invoice  of  the  17th  inst.,  $251, 
less  3  %. 

18.  Pay  the  So.  Pacific  Rv.  freiiilu  account  to  date,  ,^34.60.  (L  hargc 
Inward  Freight.) 

19.  Receive  of  Davis  &  Co.  in  settlement  ot  account,  $46. 

19.  Davis  &  Co.  have  overpaid  their  account  $10.  Refund  this 
amount  in  cash. 

20.  Sell  John  I..  Stewart  on  account  10  hx.,  200  Ih.,  raisins  (u  Sc; 
20  hx.  parlor  matches   @;  $1.20;    10  hf.  chests,  600  Ih.,  Oolong  tea   @  36  C- 

20.    Pa\    R.  1" .  ^'ale  to  cover  expenses  of  a  business  trip,  $45.70. 

20.    Bu\  of  the  Pacific  Grocery  Co.,  3    10  n   30,  500  sacks  flour   («  60  ^. 


less  5 -A 


WHOLESALE    DRY    GOODS    HUSLVESS  I3I 

20.  Pay  clerk  hire  to  date,  i^6o;  Gray  &  Son  stationery  bill  of  i6th 
inst.,  ^12.50;   postage  and  petties,  ^3.25. 

20.  Cash  sales  i8th,  19th,  and  20th  inst.,  ^^150. 

20.   Pay  the  Peerless  Truck  Co.  tor  account  of  the   loth  inst.,  ^^675, 

7,.       ' 

20.  Discount  our  60-day  note  for  ^500  at  the  People's  National  Hank, 
and  receive  credit  for  the  proceeds. 

Enter  the  amount  of  this  interest  m  the  Sales  Discount  coluinii  in  red 
ink,  and  post  it  to  Intcrt'st  account. 

20.   Pay  our  note  favor  R.  Moe  &  Co.  due  to-day,  ^5230. 

20.  Close  books  of  original  entry,  post,  take  a  trial  balance  dated 
June  20,  19 — ,  prepare  a  business  and  financial  statement  and  close  the 
ledger. 

Before  posting,  open  ledger  accounts  in  the  following  order:  Richard 
1' .  \  ale  (Capital),  Richard  1*.  \'ale  (Private),  Cash,  Notes  Receivable, 
Notes  Payable,  Stock  of  Goods,  Purchases,  Sales,  Inward  P  reight.  Delivery 
Expense,  General  Expense,  Rent,  Insurance,  Interest,  Merchandise  Discount, 
ProHt  &:  Loss,  Delivery  Equipment,  Eurniture  &  Eixtures,  \\  alter  Carr, 
Davis  &:  Co.,  E.  P.  Graham,  A.  L.  Rogers  &  Co.,  Jno.  L.  Stewart,  H.  G. 
\\  heelock,  Smith  &:  Wesson,  Southern  Grocery  Co.,  Pacific  Grocery  Co., 
Watson  Brothers.  Give  Profit  &  Loss  ten  lines'  space;  Richard  E.  Yale, 
Capital,  and  Pacific  Grocery  Co.,  each  eight  lines;  all  other  accounts,  five 
lines. 

Inventories:  Stock  of  goods,  ^5397.94 ;  cash,  ^126.28  ;  delivery  equip- 
ment and  office  furniture  at  book  value.  The  notes  and  book  accounts 
of  customers  are  considered  good.  Account  of  H.  Snell  for  gasoline,  i5 18.50, 
unpaid  ;    drivers'  wages  unpaid,  ^^25. 

In  making  up  the  Profit  &  Loss  account,  state  the  earnings  of  the  busi- 
ness as  net  profit  before  the  items  under  Interest  and  Merchandise  Dis- 
count are  brought  into  the  account. 

Close  the  account  of  E.  P.  Graham  into  the  proprietor's  private  ac- 
count, for  the  reason  that  this  item  was  charged  to  the  proprietor  as  a  loss 
last  year,  and  has  nothing  to  do  with   the  earnings  of  the  present  period. 


WHOLESALE   DRY   GOODS    BUSINESS    (Partnership) 

Exercise  17 

O  J.  Sulli\an  is  engaged  in  the  wholesale  dry  goods  business  I'eb.  28, 
19 — ,  with  the  following  assets  and  liabilities: 

Stock  of  dry  goods  ^6758.90 


1^2 


ACCOUNTS   AND     ACCOUNTING     PRACTICE 


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WHOLESALE    DRY    GOODS    BUSINESS  1 33 

Customers'  accounts,  considered  good  : 
S.  N.  Durland  &:  Co. 

Inv.  Feb.  3,  terms  2/30  $320. 

Inv.  Feb.  25,  terms  3/10  218.50 

Kenneth  Cornell 

Inv.  Feb.  I  5,  n   30  57- 50 

George  A.  ikebe 

Inv.  Feb.  24,  2/10  156.50         75--50 

Cash  415-50 

Notes  receivable : 

Harold  Mott's  30-day  note,  dated 

Feb.  27,  19 —  240. 

Office  furniture,  valued  at  965. 

\  radc  creditors  : 

H.  B.  Clartin  Sc  Co.  inv.  Feb.  26,  terms  3/10  n/30  450. 

Marshall  Field  &:  Co.  inv.  Feb.  20,  terms  2/10  n  '30  327.60 

Notes  payable  : 

O.  J.  Sullivan's  60-day  acceptance  of  Jan.  7  last,  favor 

Scott,  Carpenter  &  Co.,  payable  at  the  First  Nat'l  Bank     400 

March  i,  19 — .  O.  J.  Sullivan  and  W.  A.  Tanner  form  an  unlimited 
partnership,  under  the  hrm  name  of  Sullivan  &  Tanner,  to  continue  the 
business  hitherto  conducted  by  Mr.  Sullivan.  Mr.  Sullivan  invests  the 
assets,  and  the  new  hrm  assumes  the  liabilities  in  the  foregoing  schedule. 
Mr.  Fanner  invests  a  sum  in  cash  equal  to  one  half  of  Mr.  Sullivan's  capital 
on  this  date.  Profit  or  loss  to  be  shared  :  O.  J.  Sullivan  two  thirds,  W.  A. 
Tanner  one  third. 

Use  journal,  cash  book,  purchase  book,  sales  book,  and  ledger. 

All  rulings  the  same  as  in  exercise  16,  except  that  no  "Sales"  column 
is  needed  in  the  cash  book. 

Make  the  opening  entry  in  the  journal,  setting  forth  in  a  brief  expla- 
nation the  terms  of  the  partnership  agreement.  Include  the  cash  balance 
with  Mr.  Sullivan's  other  assets  in  the  journal  entry,  but  check-mark  (vO 
the  item  in  the  folio  column,  as  all  cash  will  be  included  in  the  cash  book. 
Open  the  cash  book  with  the  cash  balance  of  ^^41  5.50. 

What  considerations  determine  the  form  and  content  of  an  original 
entry."  If  you  cannot  answer  this  question,  review  pages  41  to  45.  Re- 
peat the  formula  with  reference  to  transactions  on  the  left  page  of  the  cash 
book;  the  same  with  reference  to  the  right  page,  the  purchase  book,  the 
sales   book,   and   the  journal. 

I.  Receive  of  W.  A.  Tanner  his  personal  check  for  the  amount  of  his 
investment,   i^oooo. 


134  ACCOITXTS   AND    ACCOUNTING    PRACTICE 

I.  Huy  ut  H.  Aliiiiwn  &:  Co.,  invoice  dated  Fcl>.  24,  terms  15  davs, 
less  3  9o  20  CSS.  percale,  gingham,  galatea,  1' rench  flannel,  women's  suit- 
ings, mousseline,  chiflon,  etc.,  !f>io(i^.  (Enter  this  in  the  purchase  book  as 
invoice  No.  i. ) 

1.  Pay  A.  II.  Ilaynes  &  Co.,  agents,  March  rent  of  business  premises, 

2.  Pay  James  Foley  cash  for  i  othce  desk,  ^^45. 

2.  Sell  P.  v.  Miller,  terms  2  5,  lO  pes.  Shaker  flannel,  250  yd.  ^  8]  c  ; 
10  pes.  1- rench   flannel,  520  vd.C"  32p;  20  pes.  unbleached   cotton,  510  vd. 

<«'  7\  <"• 

2.    Pay  .Marshall  Field  &  Co.,  for  invoice  of  20th  ulr.,  less  2%. 

2.  Pay  postage  and  petties,  $3.75. 

3.  Sell  .Morse  &  Munro,  3/10  n/30,  12  doz.  ladies'  hose  @  $450;  12 
doz.  children's  hose    (a  i§2.i6. 

3.  Pa\   Heyson  &:  W'illet  cash  for  office  supplies,  ^58. 15. 

4.  Sell  Hommel  &:  Hertrich,  net  30  days,  15  pes.  crepe  de  chine,  360 
yd.   (a   $1  ;    10  pes.    mousseline,    100  vd.  (n  50  (^ ;    10  pes.  chitton,    100  vd. 

5.  Receive  check  of  S.  N.  Durlaiul  \  Co.  for  invoice  of  the  3d  ult., 
less  2%. 

5.    Pay  Roy  Devendorf  cash  for  blank  books  and  stationery,  ^^18.73. 
5.    Pay  James  Andrews  cash  for  rubber  stamps  and  oflice  supplies,  $6.50. 
5.    Receive  check  of  George  A.  Beebe  for  invoice  of  the  24th  ult.,  less  2%. 

5.  Sell  TUq  Alexander  Olsen  Co.,  3/10  n/60,  10  doz.  La  Reine  corsets 
@  $20;  10  doz.  chamois  gloves    (?/  $1^. 

6.  Pay  car  fares  and   petty  expenses,  ^^2.30. 

6.    Pay  D.  Weyant  &  Son  cash  for  5  'F.  egg  coal    («  $y. 

6.    Pay  wages  of  clerks  and  oflice  help  for  the  week,  ^^65. 

8.  Buv  of  Marshall  Field  &:  Co.,  3  10,  invoice  dated  March  8,  10  ess. 
piece  goods  (invoice  No.  2),  ^867.50. 

8.  Pay  O.  J.  Sullivan's  acceptance  favor  Scott.  Carpenter  ^  (.'o., 
due  to-day,  ^400. 

8.  Receive  of  S.  N.  Durland  &:  C^).  rlnir  cluck  for  iiuoice  of  the  2^th 
ult.,  ^218.50,  less  3%. 

8.  Pay  n.  H.  Claflin  &:  Co.,  for  invoice  of  26th  ult.,  ^^450,  less  3*;*;. 

9.  Discount  Harold  Mott's  30-day  note  of  Feb.  27  at  the  Shoe  &: 
Leather  Hank,  and  receive  credit  for  the  proceeds. 

9.    Pay  postage,  telegrams,  and  petties,  ^4.35. 

9.  Sell  David  Kubie  &:  Brother,  net  cash,  50  rolls  liberty  ribbon  (a. 
$2.90;    25  rolls  tafl'eta  ribbon    («   ^3. 

9.  Sell  Salkin  &:  Bernas,  net  10  days,  10  pes.  percale,  420  yd.  C"  12',  c; 
13  pes.  gingham.  ^30  yd.    («   10  (^. 


' 


WHOLESALE    DRY    GOODS    BUSINESS  I35 

Close  the  cash  book,  sales  book,  and  purchase  book.  Post  all  books 
and  take  a  trial  balance,  dated  March  9,  19 — . 

In  openinj;  the  Sullivan  y  Tanner  kd^er  arrange  the  accounts  in  the 
following  order:  O.  J.  Sullivan,  Capital,  O.  j.  Sullivan,  Private,  W.  A. 
Tanner,  Capital,  W.  A.  Tanner,  Private,  Notes  Receivable,  Notes  l^iyable, 
Ortice  Furniture,  Stock  ot  (loods.  Purchases,  Sales,  Merchatulise  Discount, 
Interest,  General  Kxpense,  Shipping  Kxpense,  Drayage,  Profit  &:  Loss,  cus- 
tomers' accounts  (alphabetically  arranged),  trade  creditors  (alphabeticallv 
arranged).  Post  inward  freight  direct  to  Purchases.  No  Cash  account  is 
to  be  kept  in  the  general  ledger.  Give  Stock  ot  Cioods,  Purchases,  Furni- 
ture is:  Fixtures,  Sales,  Merchandise  Discount,  Expense  and  Profit  &  Loss 
each  eight  lines'  space;  all  other  accounts,  five  lines. 

Exercise   17   {Continued) 

March  10,  19 — .     Pay   petty  expenses,  $\.2^. 

II.    Pay  B.  Altnian  &:  Co.,  for  invoice  of  the  24th  ult.,  {^1065,  less  3%. 

II.    Receive  of  David   Kubie  6:  Brother  check  for  invoice  of  the  9th 

illSt.,  i?220. 

11.  Draw  sight  draft  on  P.  F.  Miller  for  invoice  of  the  2d  inst.,  ^224.01, 
and  leave  the  draft  at  your  bank  for  collection.     Allow  him  2%  discount. 

12.  Buy  of  Samuel  Meyer,  3/100/30,  invoice  dated  March  8,  10  doz. 
ladies'  suits,  ^^^978. 80. 

12.  Pay  Charles  \'opelak,  carpenter,  for  repairs  and  alterations,  labor 
and    material,   ^^105. 65. 

12.  Make  the  following  sales:  McCarthy  Brothers,  2/5  n/30,  12  doz. 
suede  gloves  (3  $24;  20  doz.  linen  handkerchiefs  (o  ^2.50.  Brooks  &  Son, 
2    10  n   30,  12  pes.  crepe  de  chine,  288  yd.   («  i^i.io. 

12.    Pay  car  fares  and  petties,  $5.60. 

12.  Pay  Robt.  Shaw,  agt.,  insurance  policy,  ^^7000,    @  \%. 

13.  Receive  a  check  of  Morse  &  Munro  for  invoice  of  the  3d  inst., 
$79.92,  less  3%. 

13.    Pay  wages  of  clerks  and  office  help,  $65. 

13.    Pay  McGinn  Brothers  printing  account  in  full,  bill  3    11,  ^^24. 60. 

15.    Receive  of  Kenneth  Cornell  his  check  for  invoice  of  the  15th  ult., 

15.  Receive  of  The  Alexander  Olsen  Co.  their  check  for  invoice  of  the 
5th  inst.,  $350,  less  3%. 

15.  Sell  the  \\  arner  Dry  Goods  Co.,  terms  note  at  30  days,  50  doz. 
cotton  thread  («  52  p;  50  gross  ocean  pearl  buttons  (11  $2.25;  100  gross 
hooks  and  eyes    (o   52  (5. 

15.  Pav  the  Union  l^acific  1\.  1\.  Co.  h^i^ln  account  ist  to  1  qtli  inst., 
$26.75. 


136  ACCOUNTS    AND    ACCOUNTING    PRACTICE 

15.  I'av  the  Brooke  Smith  Mt^-  Co.  cash,  less  2^,  for  packing  cases 
and  materials,  5^125.      (Charge  Shipping  Expanse,  C.  B.  entry.) 

16.  ^  our  bank  reports  collection  of  draft  of  the  nth  inst.,  on  P.  K. 
Miller. 

17.  Buy  of  the  Mohawk  Cilove  Co.  ladies'  and  misses'  gloves,  invoice 
dated   March   12,  terms  3    10  n   30,  $i\^.Go. 

17.  Receive  ot  McCarthy  Brothers  their  check  for  invoice  of  the 
12th  inst.,  /33H,  less  2';,'. 

17.    Pa\'  postaue,  telegrams,  and  jietties,  ^^5.40. 

17.  Pav  the   .Middlestates    Telephone  Co.,   March  service,  ,^14.50. 

18.  Receive  of  the  Warner  Dry  CJoods  Co.,  their  30-day  note,  dated 
.March  iv  for  invoice  of  that  date,  ^^190. 50,  and  payable  at  the  Shoe  &: 
Leather  Bank. 

18.    Pay  Samuel  Meyer  for  invoice  of  the  Sth  inst.,  J^QyS.So,  less  3%. 

18.  Discount  the  \\  anur  l)i\  (ioods  C'o.'s  note  of  tlu'  i  ;rh  mst.,  at 
the  Shoe  6c  Leather  Bank,  and  receive  credit  tor  the  proceeds.. 

19.  Pav    Thomas  Chesterton  drayage  account    .March    i   to  18,  ^^8.75. 

20.  Pa\'  wages  of  clerks  and  ofHce  help  to  date,  $(i^. 
20.    Pay  petty  expenses,  ,"^3.65. 

Close  all  original  books  of  entry,  post,  take  a  trial  balance,  prepare  a 
statement,  and  close  the  ledger  by  means  of  journal  entries. 

Inventories:  Stock  of  goods,  ^8106.40;  furniture  &  fixtures,  J^iooo; 
cost  of  20  days'  lighting,  Edison  Light  &:  Power  Co.,  unpaid,  ^^14. 50  (esti- 
mated) ;    packing  cases  and  materials,  )5ioo;   4',  T.  egg  coal    (n  ,^7. 

Practicf-:  Exf.rcisfs 

I.  Items  on  the  left  side  of  an  account  representing  a  department  <>t 
the  business  indicate  value  received.  When  the  value  so  received  is  parted 
with,  the  fact  is  recorded  by  an  entry  or  entries  on  the  right  side  of  the 
account.  Consider  (i)  that  the  value  received  by  one  department  ot  the 
business  might  be  transferred  to  another  department;  (2)  that  it  might  In- 
carried  forward  to  another  period  of  time;  (3)  that  it  might  be  absorbed  in 
conserving  or  advancing  the  business  welfare;  (4)  that  it  might  be  lost  in 
the  destruction  of  a  valuable  thing;  (5)  that  it  might  be  transferred  (st)ld) 
to  some  one  outside  the  business;  and  (6)  that  an  error  nnght  have  been 
made  111  making  the  entry,  which  would  have  to  be  rectified  by  a  cross 
entry.  \\  hen  the  v;ilue  recei\id  bv  an  account  is  transtern-d.  consumed, 
or  disposed  of,  and  proper  entries  thereot  an-  ni.ide.  the  credit  side  ot  the 
account  must  eciu.il  ihi  debit,  and  this  equilibrium  is  marked  by  double- 
ruled  footings  on  the  s;ime  horizontal  line.  Tlu-  ;iccount  is  then  said  to 
be   "  closed." 


PRACTICE    EXERCISES 


137 


Copy  the  followino;  accounts  and  show  by  proper  entries  several  ways 
ill  winch  t-ach  account  iiiitiht  bcconic  divested  of  the  value  h)dged  in  ir. 
Foot  and  rule  the  accounts  so  closed. 

PlRCHASKS 


19— 

Dec. 


31 


47^' 


I 


19— 

Dec. 


Stock  ok  Goods 


8900 


Offick   Furniture 


19 — 

Dec. 


I 

25 


325 

25 

Cash 


19— 

Dec.    ,  3  I 


1 

6453 

40 

I') 
Dec. 


3' 


Inward  Freight 


'4- 

1 

^7 

HoRSHS 


1  ;  ' 

Dec. 

I 

,   760 

1 

18 

17.^ 

1 

li 

FxiMNSK 


19— 
Dec. 


3' 


418 

138 


ACCOITNTS    AND    ArmfNTING    PRAC  IRL 


Date  otOrdcr      January  jj,  ig — 
No.  of  Hales      Om-  Hundred 


Offices 

Austin,  Texas 
Shrevt-port,  La. 
New  ^'ork 


Wei^lit  ot      ()n(-  Hundred      Bales  of  C'orron  siiippcci  l)\-  1- .  Cj. 
Smith  &:  Co.,  tor  account  and  risk  of      ./.  /.,   A'-;;v 


Landed  at      Hoston 


via     Galveston 


S.  S.    Pleiades 


I 

v^« 

1  I 

541 

11 

^  ^  "N 

31 

570 

41 

:; 

1 

600 

•- 

;6o 

22 

495 

'^: 

570 

42 

>3  7 

13 

588 

23 

-■70 

;6; 

4.^ 

4 

=^23 

>4 

558 

24 

' 

>4 

;Si 

44 

A  L  K 

> 

M4 

I ; 

521 

25 

537 

35 

565 

45 

F.  C. 

(. 

>   "* 

16 

545 

26 

571 

36 

522 

46 

01  ; 

Smith 

-- 

;  ;o 

17 

531 

^7 

557 

37 

556  1 

i  +7 

56  > 

s 

>4'' 

is; 

565 

28 

585 

38 

557  1 

'  48 

;87 

<; 

5'7 

i  "9 

497 

29 

496 

39 

520  1 

49 

l/lOO 

lO 

590 

_  *--' 

;^)0 

30 

;6o 

43 
8. 

^O" 

50 

53'-' 

-X 

'-.6 

61 

530 

71 

545 

521 

91 

555 

>  - 

."!  J  .5 

'>2 

570 

72 

576 

82 

551 

92 

553 

53 

540 

(    ' 

531 

73 

605 

83 

575 

93 

590 

54 

533 

;  64 

547 

74 

617 

84 

553 

94 

57  ^ 

55 

555 

'  6q 

515 

75 

557  ' 

85 

542 

95 

517 

56 

608 

66 

621 

76 

562   86 

537 

96 

500 

57 

555 

67 

537 

77 

565   87 

530 

97 

so; 

1 

58 

555 

68 

585 

—  ^ 

:  1".  ■         V  Q 

506 

98 

547  1 
i;6o 

'  59 

575 

69 

547 

7-i 

^  ,  ^    .^-V 

515  ! 

99 

6o 

1 

5'4 

70 
1 

594 

80 

608  ,  90 

550 

i 

100 

48; 

. 

Total  Weight 


March  r^s  JQ — 


I".  Ci.  Smith  &:  Co., 


\ 


er 


./.  //'.   T 


PRACTICE    EXERCISES 


139 


2.  The  weight-note  on  page  138  represents  a  quantity  of  middhng  up- 
land cotton  purchased  by  A.  L.  Kane  («  10.6  p  ( lOj^^j  ^)  a  pound  f.  o.  b.  Aus- 
tin, 1  ex.  i'lie  numbers  in  the  hrst  and  alternate  columns  indicate  the  num- 
bers of  the  bales,  those  in  the  second  and  alternate  columns,  the  weight  in 
pounds  of  the  bales.  When  A.  L.  Kane  received  this  cotton  April  2,  he  paid 
transportation  charges,  ^^125,  and  later  made  the  following  sales: 

April  4,  bales  Nos.  i  to  20  (ii  13.4  (^  a  pound  ;  April  9,  bales  Nos.  31  to 
50  ((/  13.6  ^  a  pound  ;  April  15,  bales  51  to  70  («  13.5  (^  a  pound  ;  April  24, 
bales  Nos.  81  to  100  @  13.7c  a  pound.  Kane's  expenses  for  storing,  in- 
suring, and  handhng  the  cotton  were  as  follows  :  April  2,  insurance,  ^^27. 50; 
April  16,  petty  disbursements,  i?i2.50;  April  30,  storage,  ^25;  April  30, 
wages,  $Go.  April  30  Mr.  Kane  inventoried  the  cotton  unsold  at  cost,  and 
calculated  the  result  of  his  venture. 

Note.  —  Manifestly',  rlic  cosr  of  this  cotton  should  include  freight.  .Since  20  bales  — 
one  fifth  of  the  cargo  —  are  011  hand,  ^^25  freight  may  he  included  in  this  inventory. 

Set  up  the  toUowmg  accounts  :  Stock  of  Cotton,  Sales,  Expense,  Profit 
y  Loss.     Close  the  accounts. 

3.  At  the  close  of  business  Aug.  31,  19 — ,  the  following  footings 
appeared  m  the  accounts  of  Joseph  Kahn's  ledger: 


Pai^e  I 


19  - 
Aug.  ,  31 


Cash 


6870 

13 

19 

Aug. 

31 

5400    1 1 


Stock  of  Goods 


19— 
Aug. 


4420 

16 

19— 

Aug.    31 

I       1 


PURCHASHS 


3425 

1 

70 

19— 

Aug. 

31 

Returns 


4'-    =;o 
I 


Sales 


I'; 

1  Aug.  1  3 1 

5S90,  :o 


I40 


ACCUlMS    AND   ACCOVMING    PRACTICE 


Aug. 


31 


19 
Aug.  131 


Pagt  2 


19— 
Aug. 


31 


19— 
Aug. 


31 


19— 


19" 
Aug.  ,  31 


19- 


Notes  Receivable 


2500 


I 


Aul;.      \l 


NoTFS     P^YMU  K 


Expense 


456   80 


I         ! 


Mfrchandise   Discount 


196 


19— 

13  n  Aug. 


31 


Tntfrest 


35    «: 


19—1 

Aiii:.     1 1 


I       I 


A.  P.  Hill  &  Co 

3958 


19— 
76  f  Aug. 


31 


Strong  Brothers 


19— 

Aug. 


Profit  &  Loss 


Aug.      I 


;oo 


IW 

1800 

Aug. 

3« 

43< 

tl 

1    i 

1         '1 

3'-    75 


15    41 


I         II 


4;o 


4>^     -5 


112     16 


PRACTICE    EXERCISES  141 

The  proprietor's  investment  account  is  omitted,  (a)  F  ind  the  amount 
of  Joseph  Kahn's  investment,  supply  his  account,  and  enter  the  investment 
under  date  of  Aug.  I,  19 — .  {b)  Copy  this  ledger  on  kdfier  paper,  and  take 
a  trial  balance,  (f)  Make  a  balance  sheet,  Aug.  31,  19 — ,  and  close  the 
ledger.  Following  are  the  inventories  :  Stock  of  goods,  i^zSSi. 20 ;  interest 
accrued  on  notes  recenable,  ^^8.25  ;  interest  accrued  on  notes  pa\able, 
i^i6.45. 

4.  James  and  .Malcolm  Andrews,  equal  partners,  own  an  ice  plant 
Jan.  I,  19 —  (current  year),  valued  at  i^i2000,  and  delivery  equipment 
valued  at  ^^6700.  During  the  winter  of  19 —  they  cur  1  acre  (43560  sc].  ft.) 
of  ice  16  in.  rliick.  at  a  labor  cost  of  cutting  and  storing  of  12-2^  per 
100  lb.  (Assume  that  ice  weighs  56  lb.  to  the  cubic  foot.)  The  cost  of 
packing  materials  is  ^^150. 

During  the  summer  the  following  sales  were  made:  April,  ^^709. 25  ; 
May,  i^i 263.45;  J'Jne,  ^^2778. 75 ;  July,  $3986.55;  August,  $3941.25; 
September,  $2840.50;  October,  $869.30;  November,  $581.31.  The  selling 
price  of  the  ice  was  60 C  per  100  lb.,  and  the  labor  cost  of  delivery,  6^ 
per  100  lb.  The  cost  of  feed  and  care  of  horses  was  $2456.76;  horseshoe- 
ing, repairs,  and  incidental  expenses,  $467.80;  depreciation  of  delivery 
equipment,  8%;   5%  of  customers'  accounts  proved  worthless. 

Assuming  that  the  business  required  a  cash  investment  of  $5800, 
find  (a)  the  profit  or  loss  per  cent;  (b)  the  loss  per  cent  from  shrinkage  in 
the  weight  of  ice  between  harvesting  and  marketing.  Set  up  and  close  the 
following  accounts:  James  AndrezvSy  Malcolm  Andrews,  Stock  of  Ice,  Sales, 
Shrinkage,   Expense,   Profit  iff  Loss. 

5.  R.  D.  King  and  George  Shone  are  engaged  in  farming  as  equal 
partners.  During  the  month  of  April,  19 — ,  they  plant  ten  acres  of  potatoes, 
with  the  following  expenditure  of  labor  and  materials:  Plowing,  $2.50  an 
acre;  harrowing,  four  times  at  35^  an  acre;  fertilizer,  5I  tons  (n  $40; 
seed,  125  bu.  (o  73  c;  disinfecting  seed  (labor  and  material),  $6.75  ;  cutting 
seed  at  6c  a  bushel;  planting,  25  hours  (horses  and  men)  at  65c.  Ihe 
ground  is  harrowed  three  times  before  the  crop  is  up,  at  a  cost  of  $11,  and 
cultivated  8  times  during  the  season,  at  a  cost  of  35  ^  an  acre.  1  he  potatoes 
are  sprayed  6  times,  at  a  cost  of  $10  each  time.  Hoeing  and  weeding 
costs  $1 .50  an  acre ;  harvesting  and  hauling,  $15  an  acre. 

The  yield  averages  220  bu.  an  acre.  They  sold  1500  bu.  at  55  c; 
500  bu.,  at  45  c.  The  land  rental  is  $35,  and  the  cost  of  storing  and 
marketing  the  crop,  $65.  Allow  10%  for  depreciation  of  implements, 
valued  at  $325.  Construct  and  close  the  following  accounts:  Cost  oj 
Planting,  Cost  of  Maintenance,  Cost  of  Harvesting,  General  Expense,  Stock 
of  Potatoes,  Sales,  Profit  U  Loss.  There  is  on  hand  at  the  time  of  closing  : 
165  bu.  of  potatoes,  50   bu.  of  which  have  been  sold  at  65  d  a   bushel, 


142 


ACCOUNTS   AND    ACCOUNTING   PRACTICE 


and  paid  tor  hut  not  diliM-nd.       I  Ik-  remaining;  115  hu.  are  appraised    at 
65  c   a   LhisIkI. 

Open   accounts  witli   partners,  and  transfer  to  each  his  share  of  the 
proHt  or  loss. 


RETAIL   SHOE   BUSINESS 


EXKRCISK    18 


A.  I  .  Knapp  commenced  a  retail  shoe  husiness  Oct.  i.  \() — . 
May  31,  the  following  \ear,  the  hooks  were  closed  and  a  statement  was 
prepared.       The  halance  sheet  showed  the  followmj:;  assets  and  hahihties: 


ASSETS 

Cash  on  deposit  in  Second  Nat'l  l^ank, 

Accounts  Recen  ahlf,  considered  good. 

Stock  of  boots,  shoes,  trunks,  and  hags, 

Real  estate  (husiness  block). 

Store  and  office  fixtures. 

Five  shares  Second  Natl  Bank  stock, 

Insurance  unexpired. 


$     968.90 
467.50 
19768. 
29000. 

975- 
500. 

40. 


^$51719.40 


LIABILITIES 

Notes  Payable  : 

Smith  Shoe  Co.,  Aprd   15,  Oo  days, 

int.  6%, 
Rice   Brothers,  May  20,  30  days, 

int.  6%, 
Interest  accrued  on  notes  payable, 
Trade  Creditors  : 

Dunn  &:  Douglas,  inv.  5  '22,  terms 

20  davs,  less  discount  of  ,^i    per 

dozen  (89  pairs), 
Ililliard    &    Co..    inv.    5/15,    terms 

.j    ',0  n  60, 
Ililliard  &:  Co.,  inv.  5/2,  terms  2/30 

n  /60, 
nines  &:  lluid,  inv.  6/1,  due  121, 

less  5%, 
Verdon    &    Mott.    inv.    5/25,    2    10 

n/30, 


)^200. 
250. 


^2}  I 

.50 

94.40 

-5 

.60 

241 

.92 

lOI 

.10 

^450. 

2. 


^^694. 5  2 


RETAIL    SHUE    BUSINESS  1 43 

Petty  Accounts  Payable : 

G.  H.  Younj;,  inv.  6    i,  terms  2  '10 

n   30,  i^i8.50 

na^«2;  Brothers,  inv.  5/5,  terms  n/30,  4.18  22.68 

Ciintiu  l>iabilities  :  $1169.20 

Mortgage   Payable   i,co\ering  busi- 
ness   block,    due    June    i,    19 — , 
and     bearing    interest     at     v^%, 
payable    Dec.     i     and    June     I  ; 
interest  paid  to  date),  J^gooo.         ;^ioi69.20 


Find  A.  L.  Knapp's  present  capital,  and  open  accounts  in  the  ledger. 
A  general  ledger  will  be  kept,  and  a  loose-leaf  binder  will  be  used  as  a  cus- 
tt)mers'  ledger,  (joods  are  sold  for  cash  and  on  credit.  All  sales  will  be 
entered  on  a  duplicate  sales  slip,  marked  "  CASH  "  or  "  CHARGE." 
All  goods  not  returned  or  paid  for  at  the  end  of  each  week  are  billed  in 
duplicate;  one  copy  of  the  bill  is  filed  in  a  self-indexing  binder,  and  the 
other  is  sent  to  the  customer.  At  the  same  time  Accounts  Receivable 
account  is  charged  with  the  total  of  such  sales  for  the  week  and  Sales  is 
credited.  \\  hen  these  bills  are  paid,  the  duplicate  bill  is  removed  from 
binder,  marked  Paid,  with  page  of  cash  book,  and  transferred  to  the  perma- 
nent Hie  for  reference.     At  the  same  time  Accounts  Receivable  is  credited. 

Unpaid  expense  bills  at  the  end  of  the  month  are  charged  to  the  appro- 
priate expense  account  and  Petty  Accounts  Payable  is  credited.  When 
such  accounts  are  paid,  debit  Petty  Accounts  Payable  and  credit  Cash. 

Cash  book,  purchase  book,  and  journal  only  will  be  used  as  original 
books.  The  headings  of  cash  book  with  rulings  to  correspond  are  as 
follows:  Left  page:  "Sundries,"  "Accounts  Receivable,"  "Sales";  right 
page:  "Net  Cash,"  "Purchase  Discount,"  "Expense,"  "Sundries."  In 
opening  the  ledger  give  Profit  &  Loss  and  Fire  of  June  16,  each  15  lines' 
space  ;  Stock  of  Goods,  Sales,  Purchases,  Expense,  Wages,  and  A.  L.  Knapp, 
Capital,  each  10  lines;  A.  L.  Knapp,  Private,  Accounts  Receivable,  Notes 
Payable,  and  Interest  &  Discount  each  8  lines;    all  other  accounts,  5  lines. 

June  I,  19 — .      Remit  Hilliard  &  Co.  for  invoice  of  2d  ult.,  less  2%. 

1.  Pay  United  States  Telephone  Co.,  June  service,  {^7.50. 

2.  Buv  of  tlu-  Hudson  Rubber  Co.,  invoice  dated  May  27,  terms  30 
days  net,  rubber  goods,  }^i 57.25. 

■  2.   Pay  petty  expenses,  $2.75. 
2.  Cash  sales  ist  and  2d  inst.,  $286.78. 

2.  Receive  customers'  checks  as  follows:  W.  S.  Burns,  $18.65;  ^^"i- 
Pettit,  $7;    A.  K.  Burtis,  $24.30.      (Credit  Accounts  Receivable.) 


144  ACCOUNTS    AND   ACCOt'NTING    PRACTICE 

3.  lUiv  of  (joodniaii  RiihlH-i  Co.,  invoice  dated  June  i,  terms,  "  Due 
Dec.  I,  di.scouiu  allowed  for  prepayment  at  the  rate  of  6%  per  annum," 
rubber  good.s,  $12}. 

3.  Cash  sales  for  the  day,  )^i 76.40, 

4.  I'.i\  \\ni.  Knri^iu,  freight  and  cartaj^e,  i^3. 55.      (Chiirp^c  Purcliasrs.) 
4.    kiiuif  Ha^j;  Brothers  for  mvoice  of  5th  ulf.     (Consult  Petty  Accounts 

for  the  amount  ot  this  item.) 

4.  Recei\e  cash  and  checks  from  customers  as  follows:  J.  Conerty, 
$l.y^\    Albert  Jones,  ,^^10.25;    Lawrence  Kubie,  ^^6.35. 

4.    Pay  \  erdon  &:  .Mott,  invoice  5/25,  less  2%, 

4.  Cash  sales  for  the  day,  J^i  22.85. 

5.  l'.i\     iHit\    expenses,    ,^4.75. 

5.  Remit  Cioodman  Rubber  CO.  lor  invoice  of  June  i,  J^I23,  lessdis- 
count.      (See  terms  of  this  j->urchase.) 

5.  (\ish  sales  for  the  day,  i^i20. 

6.  ;\.  T..  Knapp,  proprietor,  appropriates  shoes  at  cost,  5^9.75. 
(Charj!;e  .7.  /..    Knapp\<  Prhate  account,  credit  Merchandise  Stock.) 

6.  E.  C.  Knapp,  clerk,  takes  i  pair  shoes  at  cost,  ^^3.60.  1  ake  Knapp's 
"  I.  ().  U."  for  ^3.60.  Ibis  will  be  placed  in  his  pay  envelope  on  pay  day 
when  the  amount  will  be  deducted  from  his  wajjes.  At  the  present  time 
charge  Wages  and  credit  Stock  of  Goods  in  the  journal. 

6.  Receive  cash  and  checks  from  customers:  Edw.  Cassidy,  ^15.65; 
Sarah  Gamsu,  $5;    Mrs.  Carl  Williams,  )^3.40. 

6.    Pay  postage  and  petties,  ^^3.76. 

6.  l*ay  w^ages  per  pav  roll  :  E.  C.  Knapp,  ;si6.4o;  1*  red  Randolph,  $\?> ; 
Margaret   Marsden,  ^15;     Richard   Callahan,  ;^io.      (Charge   Wages.) 

6.   A.  L.  Knapp  draws  for  personal  use,  i^ioo. 

6.   Cash  sales  for  the  day,  $318.22. 

6.   Sales  on  approval  for  the  week,  ^^51. 50.      (Charge  Accts.  Rec.) 

Close  cash  book  and  purchase  book.  Post  all  books  and  take  a  trial 
balance. 

Exercise   18   {Continued) 

8.  Ruy  of  RadclifFe  &:  Son,  inxoice  dated  Jure  4,  teinis  2  10  I  30, 
ladies'   shoes,  ^^62.90. 

8.  Buy  of  Cincinnati  1  runk  C\).,  invoice  dated  May  24,  "  as  June  i, 
19 — ,"  terms  2/10  net  30  days,  suit  cases,  bags,  etc.,  5^79. (>o. 

9.  Receive  cash   fioin  sale  of    5  shares  2d  Nat'l   Bank  stock    @  $IlO. 
9.    Cash  sales  for  Sth  and  <;th  inst.,  ^^245.60. 

9.  Prepay  following  notes:  Smith  Shoe  Co.,  due  June  14;  Rice 
Brothers,  due  June  19. 

10.    Pav  Cincinnati   Trunk  Co.  for  iinoice  of  Srh  inst.,  less  2^. 


RETAIL    SHOE    BUSINESS  I45 

10.  Remit  G.  H.  Young  Co.  for  invoice  of  ist  inst.,  less  2%  (Charge 
Petty  Accounts.) 

10.  Casli  sales  for  the  day,  ^^87.10. 

11.  Remit  Dunn  &:  Doughis  for  invoice  of  May  22,  less  discount. 
(Consult  the  terms  of  this  purchase.) 

II.  Pay  Herald  Puhhshmg  Co.  advertising  account  in  full,  ^^16.75. 
(Ch  a  rge  Advert  is  in^.) 

11.  Cash  sales  for  the  day,  $125.60. 

12.  Pay  Bagg  Brothers  for  invoice  of  to-day's  date,  wrapping  paper, 
>i  1.56. 

13.  Pay  postage  and  petties,  ^^9.27. 
13.    Pay  wages  per  pay  roll,  ^^63. 

13.  Advance  E.  C.  Knapp  on  salary  and  receive  his  I.  O.  U.,  $1^. 
(See  note  to  transaction  of  the  6th  inst.  Carry  this  I.  O.  IL  as  currency 
until  pay  day.      No  entry  reciuired  now.) 

13.   Sales  on   approval  for  the  week,  $536. 45. 

13,  Cash  sales  12th  and  13th,  $318.50. 

15.    Remit  Milliard  &  Co.  for  invoice  of  May  15,  $94.40,  less  4%. 

15.  Mines  &  Hurd  ofler  us  a  special  discount  of  2%  for  settlement  of 
invoice  of  June  i.     Make  remittance  to  cover  their  account  in  full,  less  7%. 

15.  Buy  of  Field  &  Potter,  invoice  dated  June  10,  "as  July  15," 
terms  2/20,  30  days  net,  men's  shoes,  $534.40. 

15.   Buy  of  Grant  &  Whitman,  terms  3%  for  cash,  show  case,  $48.50. 

15.   Remit  Radcliflt*  k  Son  for  invoice  of  4th  inst.,  less  2%. 

15.  Cash  sales  for  the  day,  $124.05. 

15.  Pay  Grant  &  Whitman  for  account  of  15th  inst.,  less  3*^^). 
Instead  of  opening  an  account  in  the  ledger  with  Grant  &  Whitman, 

check  the  item  in  the  folio  column  of  the  journal  by  using  the  letter  C  (cash 
hook),  and  the  page  of  the  cash  book  on  w^hich  the  payment  is  entered; 
and  in  the  cash  book,  the  letter  /  (journal),  and  the  page  of  the  journal  on 
which   the  entry  for  the  purchase  was  made. 

Close  all  books,  post,  and  take  a  trial  balance. 

ExERCiSF.    18   (Continued) 

16.  A  neighboring  fire  damaged  our  stock  of  goods  and  building.  A 
claim  is  filed  with  the  agent  of  the  Phoenix  Insurance  Co.  for  $850  damage 
to  stock,  and  $1500  damage  to  building.     (No  entry.) 

16.  Return  to  Field  &  Potter  men's  shoes  for  credit,  $69.15. 

17.  Donated  $50  to  family  of  W.  M.  Smith  who  lost  his  life  in  the  fire 
of  the  1 6th  inst.  Should  the  proprietor's  private  account  or  Expense  be 
charged  for  this  r 

17.    Pay  petty  disbursements,  $8.65. 


146  ACCOUNTS    AND    ACCOUNTING    PRACTICE 

17.    Pay  W  ni.  I'.mi^lit,  frci^lu  wnd  cartage,  ^^9.75. 

17.  Cash  sales   i6th  and   lytli  inst.,  is240.i2. 

18.  Make  the  following  purchases:  Hoyt  Shoe  Co.,  invoice  dated 
June  iH,  terms  2  '  10,  net  30,  ^l  10.40;  \\  illianis,  Brown  &  Co.,  invoice  dated 
June  10,  net,  )^l.30;  Durland  Brothers,  invoice  dated  June  16,  terms  60 
days,   1/30,  ruhher  goods,  ,"^44. 40. 

18.   Cash   sales   for  the  day,  ^^200. 

18.  Settled  with  I^hfrnix  Insurance  Co.  by  accepting  iIrm  orfer  of 
i^750  for  damage  to  stock,  and  y>i  lOO  for  damage  to  building.      iNo  entry.) 

19.  Close  contract  with  J.  Kaiser  &:  Son  to  repair  building,  repairs  not 
to  include  cost  of  painting  and  tin  work  ;  contract  price,  5^850.  (Debit 
Building  Re-pairs  and  credit  Contract  Account  ij.    Kaiser  ^  5>ow).) 

19.  Stock  damaged  b\  heat,  smoke,  and  water  appraised  at  J^i8oo. 
Set  this  stock  aside  and  advertise  a  "  fire  sale."  Open  Fire  oj  June  16 
account.  Charge  this  account,  and  credit  Stock  oj  Goods  with  the  invoice 
value  of  damaged   goods. 

The  purpose  of  segregating  these  goods  is  to  keep  the  result  ot  this 
fire  out  of  the  regular  ProHt  &:  Loss  account  which  should  show  the  earn- 
ing power  of  the  business.  \\  hile  a  Hre  is  at  all  times  possible,  and  the  cost 
of  protection  under  insurance  is  a  legitimate  charge  against  the  earnings  of 
the  business,  if  a  fire  occurs,  its  cost  and  outcome  in  profit  or  loss  are  wholly 
apart  from  the  regular  trading  activities  of  the  business.  These  damaged 
goods  should  be  accounted  for  under  a  separate  head,  and  the  result 
brought  into  a  sub-section  of  the  Profit  &  Loss  account. 

19.  Cash  sales  for  the  day,  $100. 

20.  Pay  telegrams,  car  fares,  and  petties,  ;^  13.50. 

20.  Receive  from  Phoeni.x  Insurance  Co.,  in  full  settlement  of  our  claim 
on  account  of  fire  of  June  16,  draft  on  New  York,  )?i850. 

Credit  Building  Repairs  i^iioo;    and  Fire  of  June  16  account  ^^750. 

20.    Receive  cash  and  checks  from  customers:     Maud  Helmer,  {^13.40; 
J.    G.    Walker,   ^^5 ;     Charles    Wright,    90  c ;     Bernard    Gutwillig,    ^7.85; 
Mrs.  11.  L.  Mark,  ^^10.15. 

20.  Pay  wages  per  pay  roll,  ^^48.  (Don't  forget  E.  C.  Knapp's  I.  ().  L'. 
of  I  qrh  to  be  included  now  as  cash.) 

20.  Advance  J.  Kaiser  &:  Son,  on  contract  ot  19th  inst.,  i^200.  (Debit 
Contract   Account  {J.    Kaiser  l^  Son).) 

20.   Credit   sales   for  the  week,  ^^55. 43. 

20.  Buy  of  Bagg  l^rothers,  terms  cash,  less  2<^,,  invoice  wrapping 
paper,  ^^20.90. 

20.  Cash  sales  for  the  day,  ^^375. So.  (Credit  Fire  of  June  16  account 
wirh  ;f^i64.30  and  Sales  account  with  the  balance.) 

20.    Pav  IKnrv  Whitman,  cKrk  hire,  ,*^;,  lames  Prour,  bov,  ♦^1.25. 


RETAIL    SIIUE    BUSINESS  I47 

This  extra  labor  resulted  from  increased  business  on  account  of  the 
fire  sale  and  should  be  charged  to  tht-  Fire  of  J  line  16  account. 
22.    Remit  Bagg  Brothers  for  invoice  of  20th  instant,  less  2%. 
22.   Cash  sales  from  regular  stock,  J^i  17.60. 

22.  Cash  sales  from  fire  sale  goods,  ;i^i 86.50. 

23.  Pay  petty  expenses,  ^^3.45. 

23.    Remit  Williams,  Brown  &:  Co.,  for  invoice  of  i8th  inst.,  ^1.30. 
23.   Cash  sales  from  regular  stock,  ^98. 

23.  Cash  sales  from  fire  sale  goods,  )^i  12.20. 

24.  Receive  cash  and  checks  from  customers:  C  A.  McCreary,$7.50; 
Ruth  Bull,  i^5;  Bartlett  Brothers,  ^18.50  ;  Mrs.  J.  Hinckley,  ^^2. 75  ;  Mary 
Curtis,  ^\}  ;    John  Andolscheck,  ^^3.75. 

24.  Cash  sales  from  regular  stock,  J5i 30.90. 
24    Cash  sales  from  fire  sale  goods,  ^$86. 54. 

25.  .Make  the  following  purchases:  Dunn  &  Douglas,  invoice  dated 
6  12,  terms  20  days,  less  a  discount  of  ^i  per  dozen  (108  pairs),  shoes, 
$268.25;  Hilliard  &:  Co.,  invoice  dated  June  15,  terms  4/30  n/60,  shoes, 
$246.50. 

25.  Cash  sales  from  regular  goods,  $155. 

25.  Cash  sales  from  fire  sale  goods,  $65.75. 

26.  Receive  cash  and  checks  from  sundry  customers:  Ed.  Rich,  50 f^; 
Myrtle  Greene,  $1.25  ;   George  W.  Stewart,  $13.50. 

26.  Pay  \Vm.  Enright,  freight  and  cartage  bills,  $12.65. 

27.  Bert  Phelps  returns  defective  shoes.  We  give  him  a  new  pair  of 
five-dollar  shoes  m  exchange  for  the  old  ones,  which  we  return  to  the  manu- 
facturer. Field  &:  Potter,  and  charge  them  with  the  cost,  $3.60. 

27.  Cash  sales  regular  stock  26th  and  27th,  $240.95. 

27.  Cash  sales  fire  sale  goods  26th  and  27th,  $165. 

27.  Sales  on  approval  for  the  week,  sundry  customers,  $18.50. 

27.   Pay  parcel  post  charges  on  parcel  to  Field  &  Potter,  35  ^. 

27.    Pay  wages  per  pay  roll,  $63. 

27.   Pay  postage  and  petties,  $4.75. 

27.  Buy  of  the  Hoyt  Shoe  Co.,  invoice  dated  \n\y  i,  terms  2  10  net 
30,  children's  and  misses'  shoes,  $86.50. 

27.  A.  L.  Knapp  discounts  his  90-day  note  for  $4000  at  the  Nat'l  Ex- 
change Bank  and  receives  credit  for  the  proceeds.  Mr.  Knapp  gives  the 
bank  his  check  for  the  amount  of  this  interest. 

Enter  the  face  amount  of  this  note  in  the  "  Sundries  "  column  and 
charge  Interest  and  Discount  on  the  right  side  of  the  cash  book. 

29.   Pay  the  Hoyt  Shoe  Co.  for  invoice  of  iSrh  inst.,  less  2%. 

29.  Sell  the  balance  of  fire  sale  goods  to  A.  Dobrosky  and  receive  cash 
for  the  sale  price,  $275. 


148  ACCOUNTS   AND     ACCuUNTING     PRACTICE 

29.   Cash  sales  for  the  day,  reguhir  stock,  ^^195. 

29.  Mary  Nellis  returns  two  pairs  shoes,  not  satisfactory.  Refund 
the  purchase  price  in  cash,  ^4. 75. 

30.  Pay  John  II.  Lawrence  in  full  satisfaction  of  the  mortpage  held 
on  the  husiness  jireniises,  ^^9000,  with  interest  to  date. 

30.  Receive  cash  and  checks  from  sundry  customers:  \\  .  W  .  Murray, 
$8.75;  1'.  L.  Brown,  J^2.50;  N.  ^^  Construction  Co.,  ^23;  .Mrs.  Frank 
Jones,  ,*^i.50. 

30.   Cash  sales  for  the  day,  )^  148.50. 

30.    Pay  petty  expenses,  50  ^. 

30.  Pay  I  nited  Cias  &  Electric  Co.,  li^htinp  for  June,  i^li.70.  Close 
books  of  orijiinal  entry,  post,  take  a  trial  balance,  prepare  a  statement  and 
close  the  lidj;er. 

Inventories,  June  30,  19 — :  Stock  of  merchandise,  ^16642.50;  in- 
surance unexpired,  i^33  ;  book  account  of  John  Muller,  J^iS.yq,  is  con- 
sidered worthless;  cash  account  is  short  $i,  probably  mistake  in  making 
chan^;e;    all  other  property  is  appraised  at  book  value. 

Liabilities  incurred  and  values  consumed  during  June,  which  have  not 
been  recorded  on  the  books:  Salaries,  two  days,  i^2i.  (Credit  Ji'agcs 
July  Account.)  Advertising,  Herald  Pub.  Co.,  account  of  fire  sale,  $18.25. 
(Credit  Petty  Accounts  Payable.) 

July  I,  19 — .  A.  L.  Knapp  transfers  to  his  son,  E.  C.  Knapp,  a  one- 
third  interest  in  his  retail  shoe  business,  after  withdrawing  from  the  capital 
of  the  business  the  premises  in  which  the  business  has  been  carried  on. 
\  he  partnership  shall  be  known  as  A.  L.  Knapp  &:  Son.  The  new  firm  is  to 
pay  a  rental  of  $100  per  month  for  the  use  of  the  first  floor  and  basement 
now  occupied  by  the  business.  Mr.  E.  C.  Knapp  agrees  to  give  his  whole 
time  and  attention  to  the  business,  and  it  is  agreed  that  the  personal  draw- 
ings of  neither  partner  shall  impair  the  present  capital. 

Make  the  required  entries. 


SINGLE    ENTRY    BOOKKEEPING 

Exercise   19 

The  record  of  a  business  transaction  by  which  we  indicate  both  the  giver 
and  the  receiver  of  value  is  called  a  "  double  entry."  1  lie  equation  to  which 
the  relationship  of  debtor  and  creditor  gives  rise  enables  the  bookkeeper 
ro  test  the  accuracy  of  his  work  by  means  of  a  trial  balance.  But  many 
business  concerns  of  the  smaller  class  do  not  keep  complete  records  of  their 
busmess  transactions.  Such  records  m  busmess  offices  vary  all  the  way  from 
a  complete  record,  called  "double  entry,"  to  the  proprietor's  vest-pocket 
memoranda  of  what  he  considers  important  events.  Oftentimes  only  such 
records  are  found  as  are  necessary  to  prove  executory  agreements  with 
customers  and  trade  creditors  —  charges  and  credits  to  those  from  whom 
a  concern  buys,  and  to  whom  it  sells,  goods.  The  cash  register  is  often 
employed  as  a  check  upon  irregularities  in  the  money  account,  and  the  cash 
book  is  dispensed  with.  Anything  less  than  double  entry,  for  want  of  a 
better  name,  is  called  "  single  entry."  It  cannot  be  defined,  because  it 
means  nothing  definite. 

As  the  term  "  single  entry  "  is  employed  in  textbooks  and  referred 
to  in  examination  questions,  it  usually  means  the  ledger  accounts  of  cus- 
tomers and  trade  creditors,  together  with  the  source  book  or  books  from 
which  items  comprising  these  accounts  are  posted.  The  purchase,  sales, 
and  cash  books  may  be  kept ;  the  original  entries  may  appear  in  a  journal  in 
chronological  order;  or  the  book  of  original  entry  may  be  dispensed  with 
altogether,  and  postings  made  from  loose-leaf  memoranda.  Items  com- 
prising trade  creditors'  accounts  may  be  taken  from  their  invoices,  from  the 
check  stub,  or  from  the  notebook.  When  customers'  invoices  are  made  on 
a  typewriter  or  billing  machine,  charges  to  customers  may  be  taken  from 
carbon  copies  of  these  invoices,  and  credit  items  from  the  counterfoils 
(stubs)  of  the  note  and  check  books. 

If  the  journal  only  is  employed  as  a  posting  medium,  it  may  take  the 
form  shown  on  page  150. 

Of  course,  if  a  cash  book  were  kept,  personal  items  would  be  posted 
from  that  book;  and  all  items  might  be  segregated  and  the  journal 
practically  dispensed  with  if  the  purchase,  sales,  and  note  books  were  also 
kept.  One  familiar  with  the  procedure  of  double  entry  bookkeeping  should 
have  no  difficulty  in  handling  a  set  of  single  entr\-  books. 

140 


i=;o 


ACCOUNTS  AND   ACCOUNTING   PRACTICE 


William  \'.  Smith,  Dr.,  net  20  days 
2 ;  bbl.  applfs  (g.  3.25 

3 
r.  \\  .  \\  inkier,  Cr.,  net  30  days 

I  car  clipped  wliite  oats,  1600  bu.  (<»   401^ 


William  V.  Smith,  Cr. 

Rccfivcd  cash  for  invoice  of  2d  inst. 
?EB.  2 

T.  W.  Winkler,  Dr. 

Gave  hiin  our   30-day  note,  pa\  abk-  at  Corn  i.x- 
changc  Bank,  for  inv.  of  Jan.  2,  $640 


«I 


640 


81 


640 


52 


Such  exercises  as  the  following,  however,  often  arise  in  e.xaminations. 

1.  1.  D.  King,  whose  books  have  been  kept  by  smgle  entry,  decides 
Nov.  I,  19 —  to  change  to  the  double  entry  method.  An  inventory  of  his 
possessions  discloses  the  following:  Stock  of  goods,  J57865.50;  notes  re- 
ceivable, )^i2i8;  ofHce  furniture,  ^^325;  real  estate,  i^Sgoo.  He  has  notes 
outstanding  amounting  to  ^^975.  His  ledger  shows  customers'  accounts 
considered  good,  $2365.78,  and  creditors'  accounts  amounting  to  )5i 764.50. 
Open  accounts  necessary  to  change  to  double  entry. 

The  situation  you  have  to  meet  is  that  which  confronts  you  in  every 
opening  entry,  it  matters  not  how  the  books  have  been  kept,  or  whether  any 
books  have  been  kept ;  namely,  that  certain  persons  own,  or  have  a  pecuniary 
interest  in,  certain  things.  However,  if  some  of  the  things  owned  and  some 
of  the  owners  are  alread\'  recorded  in  the  ledger,  which  is  to  be  converted 
into  a  double  entry  ledger,  obviously  the  record  of  things  already  there 
should  not  be  repeated.  The  simplest  way  under  such  circumstances  is 
to  make  an  opening  double  entry  in  the  journal  exactly  as  you  would  at  the 
beginning  of  a  business,  and  check-mark  the  items  of  customers  and  trade 
creditors  as  having  been  posted,  as  shown  in  illustration,  page  151. 

If  the  facts  require  you  to  indicate  the  additional  accounts  to  be 
opened  to  effect  the  change  from  single  cntr)'  to  double  entry  without  mak- 
ing a  journal  entrv,  exhibit  all  accounts  except  those  of  persons  outsule  the 
business. 

2.  How  should  you  determine  the  profit  or  loss  of  a  business  if  the  books 
have  been  kept  by  single  entry  .' 

Again,  it  matters  not  how  the  books  have  been  kept,  the  calculation  of 
profit  or  loss  has  to  be  verified  by  comparing  the  proprietor's  equity  (capital) 
at  the  beginning  of  the  period  covered,  with  his  e(]uity  at  the  close  of  such 
period.     And  this  is  the  method  employed  in  single  entry.      Kvidence  of 


SINGLE    ENTRY    BOOKKEEPING 


151 


Nov.   19 — 


Notes  Receivable,  Sched.  A 
Accounts  Receivable,  per  ledger 
Stock  ot  Goods,  Sched.  B 
Real  Estate  —  deed  to  business  premises 
Office  Furniture,  Sched.  C 
Notes  Payable,  Sched.  D 
Accounts  Payable,  per  ledger 
F.  D.  King,  Capital 

Tlie  business  of  K.  D.  Kinu;,  Nov.  i,  19 — ,  con- 
sists of  the  foregoinf;  assets  and  liabilities 
as  inventoried  and  appraised  by  himself 


I218 
2365 
7865 
8900 


78 

50 


975 
1764 

17934 


50 
78 


assets,  other  than  book  accounts  and  notes  payable,  exists  wholly  apart 
from  the  record,  whether  the  books  are  kept  by  single  entry  or  by  double 
entry.  And  the  value  of  a  book  account  is  not  in  the  record,  but  in  that 
which  underlies  the  record;  namely,  the  financial  ability  of  the  debtor. 

Any  method  of  calculating  profit  involves,  as  a  first  consideration,  the 
valuation  of  assets ;  and  while  a  complete  double  entry  record  may  aid  in 
such  valuation,  recourse  in  every  case  must  ultimately  be  had  to  things  to 
which  the  record  relates. 

There  is,  then,  only  one  way  to  determine  profit,  and  that  is  by  com- 
paring the  value  ot  things  owned  on  one  date  with  things  owned  on  a  sub- 
secjuent  date,  always  having  regard  for  the  interests  of  those  outside  the 
business.  This  is  the  method  employed  in  the  construction  of  a  balance 
sheet  when  books  are  kept  by  double  entry.  Double  entry,  however,  when 
supplemented  periodically  by  a  revaluation  of  assets,  shows  not  only  what 
the  profit  or  loss  is,  but  it  shows  the  source  from  which  the  profit  is  derived, 
as  well  as  the  factors  of  cost  (expenses  and  losses)  that  tend  to  impair  or 
wholly  absorb  the  earnings  of  the  business. 

3.  Compare  the  merits  of  single  entr}^  and  of  double  entry  bookkeeping. 

Single  entry  has  the  "  merit  "  of  showing  our  relati(Mis  with  persons 
outside  the  business,  which  are  really  incidental  to  the  main  purpose  of 
trading.  If  it  were  not  that  the  practice  of  giving  credit  has  become  a 
firmly  established  custom  in  connection  with  merchandising,  we  might  safely 
say  that  the  matrei  of  financing  sales  and  purchases,  and  the  risk  which 
such  financing  entails,  are  activities  separate  and  distinct  from  those  of 
trading.  1  hey  relate  to  capitalization  rather  than  to  trading,  and  at  best 
are  onlv  a  fragment  of  that  which  double  entry  exhibits.  Single  entry 
provides  no  means  of  testing  the  accuracy  of  the  bookkeeper's  work,  which 


152  ACCOUNTS   AND   ACCOUNTING   PRACTICE 

IS  not  .1  sciious  objection  where  calculating  machines  are  emploved.  And, 
while  net  proHt  or  loss  may  be  shown  as  m  double  entry,  the  factors  involved 
cannot  be  exhibited.  1  he  business  man  without  information  respecting 
the  details  ot  his  business  is  fortunate  if  he  long  escapes  financial  disaster. 

4.  1  rank  DeGroot  and  J.  I*.  Mitclull  are  partners,  sharing  equally  in 
profits  or  losses.  1  heir  books  have  been  kept  by  single  entrv.  I  lu  fol- 
lowing facts  are  derived  from  different  sources: 

Ledger  accounts  show:  Irank  DeCji'oot  investment,  J^i0500;  |.  P. 
Mitchell  investment,  ^^10500;  sundry  accounts  pavable,  ^5500;  sundry 
accounts  receivable,  J^Scxx).  Other  assets  and  liabilities  are  :  cash  on  deposit 
in  bank,  J^45CKD  ;  notes  receivable,  J^3 300  ;  stock  of  goods,  5^17500  ;  full  paid 
stock  of  the  Great  Northern  Bank,  valued  at  5^3000;  real  estate,  555500; 
notes  payable,  ^2500. 

Determine  the  outcome  of  this  business  in  profit  or  loss.  Distribute 
the  net  result  between  the  partners.  Formulate  a  journal  entry  that  will, 
when  posted,  convert  the  single  entry  ledger  into  one  of  double  entry. 

5.  1  he  open  accounts  in  the  single  entry  ledger  of  W.  F.  Hildreth  show 
the  following  footings  : 

Dr.  Cr. 

W.  F.  Hildreth,  Proprietor  ^^7865. 

Charles  Carman  $625.87 

Kaufman  Brothers  345-76         879.50 

B.  ().  Rich  &  Son  100.  647.30 

R.  P.  Howard  550.  320.65 

His  bank  account  shows  a  balance  of  J?967.io;  notes  and  acceptances 
in  his  favor  amount  to  $860  ;  inventory  of  stock  shows  goods  on  hand  valued 
at  ^()jH^.T,o;  furniture  and  H.xtures,  ^^380.  Flis  own  notes  outstanding 
amount  to  $^yS- 

Show,  by  means  of  a  statement,  llildreth's  assets,  liabilities,  and  c.iji- 
ital.  Open  such  aiklitional  accounts  111  tlu  ledger  as  are  necessary  to 
change  it  to  the  double  entrv  system. 

6.  A  set  of  single  entry  books  are  to  be  changed  to  double  entry  June  30, 
19 — .  I' rom  different  sources  the  following  data  are  obt;iined  :  cash  on 
deposit,  ^^7300;  currency  on  hand,  ^30;  notes  receivable  owned,  5^4960; 
book  accounts  receivable  considered  good,  $6320;  notes  payable,  5^2276; 
mortgage  payable,  j5i2000;  interest  accrued  on  mortgage,  5^150;  merchan- 
dise purchases  during  the  past  year,  ^^40480;  sales,  $49820;  expenses, 
$3052;  rent  due  and  unpaid,  $240;  goods  in  stock  at  date,  $8130;  real 
estate  owned,  $26400;    A.   B.  Williams,  investment,  $24300. 

(a)  Prepare  a  statement  to  show  whether  these  data  :ire  complete. 

(b)  Show  which  method  of  determining  profit  or  loss  is  c(Miclusive. 
(f)    Make  entries  necessary  to  change  the  books  to  double  entry. 


masons'  supplies  and  building  materials 


153 


masons'  supplies  and  building  materials 

Exercise  20 

Jolin  R.  Parker  is  a  dealer  in  masons'  supplies  and  luiilding  material, 
April  30,  19 — ,  Incomplete  records  of  his  business  transactions  have  been 
kept ;   but  from  different  sources  the  following  facts  are  obtained  : 

Mr.  Parker's  check  book  shows  the  following:  Jan.  i  last  balance  in 
bank,  ^^425.07  ;  deposits  Jan.  i  to  April  30,^^3940.75;  checks  drawn  and 
issued  Jan.  i  to  April  30,  ^54100. 40.      There  is  ^^34. 73  in  currency  on  hand. 

As  a  part  of  the  business  assets,  Mr.  Parker  produces  the  following: 


No.  /^(^ 


the  order  of 


"^7 


f^^^C^v  ^-^.^f^^^ ^  nfter  date   I   promise  to  pay  to 


^tj;^^!^^.:  :   " 


Value  received,  payable  at  the. 


"  Dollars 


^  J 


''/'-  -^^ 


/, 


f^^-t-^y-TT?    1  -TL       ^  - . 


A  small  ledger  is  produced  containing  the  following  open  accounts  : 

H.   B.  VVhitlock 


19— 

l'> 

Jan. 

7 

n/30 

1 

-  -i  > 

! 

!  Feb. 

s 

4 

200 

I\b. 

15 

<< 

4 

6q 

Mar. 

1 

5 

120 

Mar. 

I 

<( 

5 

146 

>o 

Apr. 

2. 

6 

146 

50 

Apr. 

I 

« 

6 

212 

60 

Stewart  Trf.at 


I'; 

19— 

Jan. 

21 

n/30 

-> 

765 

So 

Feb. 

20 

4 

765 

80 

28 

4i 

^  1 

50 

Mar. 

27 

r, 

50 

Mar. 

i; 

(i 

.s 

75 

(>; 

Apr. 

10 

Returns 

0 

10 

50 

.Apr. 

7 
17 

41 

6 

7 

1 

100 
65 

.0 

17 

7 

65 

15 

154 


ACCOUNTS  AND   ACCOUNTING   PRACTICE 


19— 

Mar.  I  1 1  I  n/30 

Apr.    lis'!     " 


W  .     I.    ('Rrx^Nfw 


1'/ 

3^5. 

Apr. 

I 

Returns 

6   1 

« 

1       i 

10 

1       1 

Returns 

6 

7 

'     317 
8 

John  R.  Parkhr  (Investment) 


I 


Ian.         I      Present  Capital 


I    : 13000 


Mr.  l^arker  produces  a  schedule  of  goods  in  stock  as  inventoried  by 
himself  April  30,  anioutning  to  ^7168.35.  He  also  produces  a  deed  to  the 
business  premises  which  he  values  at  )^8ooo,  but  which  is  covered  by  a 
mortgage  of  ^'^3500,  held  by  the  People's  Savings  Bank,  and  drawing  interest 
at  the  rate  of  6%  per  annum.  Interest  on  mortgage  has  been  paid  to 
April  30. 

The  other  business  effects  of  Mr.  Parker  are  appraised  as  follows: 
Horses,  i^900;  wagons  and  harnesses,  ^465;  office  furniture,  ^^125;  horse 
feed,  ^135. 

Ihc  invoice  hie  contains  the  following  unsettled  invoices: 


""-»- 4S.0 MH.KO.B    ,-1^7,'- r.rr^TaiHT        -■—■  ■"= 

John  R.  Parker                                                       Chicago,  .-Xpril  16,  19 — 
(^'our  Place) 

FISHER    c\-    COMPANY 

SALES    AGENTS    KOR 

THE  GENKRAL   FIRi;PR(X)FIN(;  COMPANY 

Terms:   Net  jfn  days            V.  O.  \i.   freight  allowed              Piircliasir'.s  Order  .No. 
No  discount           Via  C.  B.  &  Q.                            Our  Order  No.  1080 

Factory  invoice  #28277 

Material 

I'rick        ,[           Auiu  SI 

34  hM.   HH  galv.  Herrinpbone,  76^  yd. 
Less  freipht 

2}]C                     179178 

1 

1.             '■'      -^ 

MASONS    SUPPLIES    AND    BUILPING    MATERIALS 


155 


Juhn  K.  Parker. 

(Your  Place) 


30  Rivi:r  Street 
Kansas  City,  Mo.,  April  9,  19 — 


Bought  of    REED    &:    RICE 

MANLKACTURKRS    OK    THE    STANDARD    AMIKKAN     HRAND 

"ADAMANT   PORTLAND" 


Terms :    jo  days  net  or  One  Cent  per  bbl. 
discount  for  cash  paid  within 
10  days  from  date  of  invoice 


Works  at  Portland,  On-. 
Coplay,  Pa.,  and  Hannibal,  .Mo. 


Remit  in  New  ^'ork  or  Chicafjo  funds 

ALT.  rt.\t\fs  FOR  DVT''-  - -'.'•;  -  \ii"-;t  nr.  \i\nr.  w  nuiN  ten  days  akii  ; 


Hbl.  Adamant  Portland  Cement, 
in  wood,    (a  per  bbl. 

150  Bbl.  Adamant  Portland  Cement, 
in  cloth,    C"    1-57  per  bbl. 

Bbl.  Adamant  Portland  Cement, 
in  paper,    Qi,  per  bbl. 

F.  ().  B.  ('^'oiir  place) 

Less  freight   (o:  80^  per  net  ton 


Quotation  No.  3/16 

Our  Order  No.  6889 

Your  Order  No.    20   3/25/10 

Checked  by  A.  B. 


(Bill  of  lading  attached) 

NO    DISCOUNT    ALLOWED    ON    FREIGHT 
CHARGES,    NOR    UNLESS    PAYMENT    IS 
MADE    WITHIN    10    DAYS    IRdM    DATK 
OF  THIS    INVOICE. 


^35 
22 

50 
80 

212 

70 

The    wages   of  workmen,    amounting   to   ^^18.75,   are   unpaid.       Find 
l^arker's  profit  or  loss  smce  Jan.  i,  19 — . 

Assume  that  you  are  to  take  charge  of  Mr.   Parker's  hooks  and  keep 
them  by  double  entry.     Make  a  journal  entry  that  will  include  all  the  assets 
and  liabilities  given  above,  and  show  what  Mr.  Parker's  capital  is  May  i, 
19 — .     Open  the  necessary  ledger  accounts,  giving  each  six  lines. 
Plan  the  grouping  of  these  accounts  in  accordance  with  previous  instructions. 

1  he  promises  of  others  to  pay  us  money  are  called  "  Notes  Receivable  ' ; 
land  and  buildings  are  called  "  Real  Estate  "  ;  our  promises  to  pay  secured 
by  mortgage,  "  Mortgage   Pavablr."     Open   an   account  with  Horses,  one 


156  ACCOUNTS   AND   ACCOUNTING   PRACTICE 

with  Wagons  iff  Ilanu.i^  and  one  with  Feed.  Credit  IVages  for  the  amount 
due  workmen,  and  m  the  following  narrative-,  drl^r  H'lgt's  for  amounts  paid 
workmen.      I'ost  the  opening  entry. 

Using  cash  book,  ruled  to  meet  the  conditions  involved  in  the  transac- 
tions, sales  book,  purchase  book  and  journal, enter  the  following  transactions. 
Post  and  take  a  trial  balance  May  21,  19 — . 

May  I,  19  -.  Buy  of  Fisher  &:  Co.,  net  30  days,  2%  10  days,  40000 
#1  hard  brick   c«  ^S-'S  P^r  ^^^ 

2.  Sell  \\  .  J.  Crossman,  net  30  days,  2^0  10  days,  2  T.  adamant  in 
jute  bags    Qi  $2^. 

3.  Receive  of  Stewart  Treat  600  jute  bags  @  7^.  (Charge  this  item 
to  Rfturned  Salt's.) 

3.    Receive  of  H.  B.  Whitlock  in  full  of  his  account,  )^2 12.60. 

3.   Pay  wages  of  workmen  to  date,  ^}6.     (Debit  Wages  for  this  item.) 

5.    Pay  postage,  petties,  and  stationery,  $6.50. 

7.  Sell  Smith  Sprague,  n  '30,  100  bags  lath  mortar  (f?;  $6.75. 

8.  Buy  of  the  Ogden  Cement  Co.,  terms  30  days  net,  less  i^  per  bbl. 
discount  for  cash  in  5  days,  150  bbl.  Portland  cement  in  cloth  (n  ,^1.55,  less 
freight  on  22'  tons   («  82  ^. 

g.  Return  to  Reed  &  Rice  1000  empty  bags  @,  7  ^.  (Credit  Returned 
Purchases.) 

9.  Remit  Reed  &  Rice  cash  in  full  of  their  account. 

10.    P.iv  Hiram  Smith,  Collector,  state  and  county  tax,  ^26.75. 

10.    Pav  weekly  pay  roll,  wages  of  workmen,  $36. 

10.  Pay  your  local  railroad  company  freight  account,  $49.75.  Charge 
the  Ogden  Cement  Co.  for  freight  allowed  on  purchase  of  the  Sth  inst. 
(Charge  Inzcard  Freight  for  the  balance.) 

10.    Remit  Fisher  &  Co.  for  invoice  of  the  1st  inst.,  less  2%. 

12.  Receive  of  W .  J.  Crossman  for  invoice  of  the  2d  inst.,  $48, 
less   2  %. 

12.  Pay  J.  E.  Thompson  for  wagon  repairs  and  horseshoeing,  $11.75. 

13.  I*av  the  Ogden  Cement  Co.  for  invoice  of  the  8th  inst.,  less  discount. 
(See  the  terms  of  this  purchase.) 

14.  Pay  William  Chave,  agent,  fire  insurance  premium,  $48.50. 

15.  Receive  of  Howard  Lamb  for  his  note  due  to-day,  $300. 

15.    Receive  of  Stewart  Treat  his  check  in  full  of  his  account,  $165.70. 

15.  Stewart  Treat  has  overpaid  his  account  $42.  Send  him  a  check  for 
this  amount  in  adjustment. 

16.  Buy  a  Chicago  draft  at  your  local  bank  and  remit  it  to  Fisher  &  Co. 
in  full  of  their  account. 

16.  Pay  postage  and  petties,  $8.96. 

17.  Receive  the  following  from  the  National  Gypsum  Co.  : 


MASONS     SUPri.IES    AND    HI  ll.DlNG    MATKRIALS 


157 


NATIONAL 

GYPSUM 

CO. 

CREDIT 

MANIFACTURERS   OF 

SALES  OFFICE 

MEMORANDUM 

GVPSL.M 

PRODUCTS 

St.  Louis 

CHICAGO 

,   ILLINOIS 

MILL 

To  John   R.    Par 

kcr 

Oak  field  #  2 

DATE     May 

13. 

19 

Allowance  for 

material  supplied 

to  Ered   Krebs 

,  Sprinjifield, 

as  per  your 

bill  of  May  8,  19 

— ,  and  in  accordaTice  with  arrangements  with  this  office : 

500  Plaster  Boards  at  I2d  eacli 

=  ^60 

Lender  our  agreement  with  this  Company  we  receive  credit  for  all  sales 
in  our  territory  whether  the  material  passes  through  our  hands  or  not. 
(Credit  Commission  for  this  item.) 

17.   Pay  wages  of  workmen,  weekly  pay  roll,  ^36. 

19.  Sell  the  Rockaway  Construction  Co.  100  bbl.  Portland  cement 
@  $1.80.     Terms,  30  days  net. 

19.  Receive  of  \V.  J.  Crossman  his  30-day  interest-bearing  note  in 
settlement  of  his  account. 

21.   Pay  office  help,  ^1^45. 

21.   Pay  postage  and  petties,  $3.45. 

After  having  taken  a  trial  balance  and  made  a  statement,  close  the 
ledger.     Following  are  the  inventories  May  21,  19 — , 

Inventories:  Merchandise,  $6694.25;  horse  feed,  $98;  cash,  $1435; 
interest  accrued  on  mortgage  payable,  21  days  at  6%. 


MERCHANDISE     DISCOUNTS 

It  is  a  general  custom  in  the  wholesale,  jobbiny;,  and  manufacturing 
businesses  to  sell  goods  at  prices  that  art-  subject  to  a  discount  if  payment 
is  made  at  once  or  at  an  early  date.  This  discount  is  usually  a  certain 
per  cent  of  the  invoice  price,  for  payment  on  a  date  specified  ;  as,  an  allow- 
ance of  2%  for  payment  within  ten  days  from  the  date  of  the  invoice. 
Occasionally,  when  the  term  of  credit  is  of  several  months'  duration,  a 
certain  per  cent  per  annum  is  allowed  for  prepayment  at  any  time.  In  rare 
instances  the  discount  is  based  upon  the  cjuantity  sold  ;  as,"  1  erms,30  days, 
less  a  discount  of  i?i  per  dozen." 

\\  hile  there  is  no  uniformit\  in  the  various  businesses  as  to  the  term  of 
credit  or  discount  oftered,  each  invoice  is  usually  specific  in  regard  thereto. 
"  This  account  is  due  in  30  days  from  date  of  invoice,  but  subject  to  a  dis- 
count of  3  %  for  payment  in  10  days,"  or  the  formula,  "  lerms  3  10  n  30," 
are  different  ways  of  indicating  on  the  invoice  that  the  term  of  credit  is 
30  days,  with  a  discount  offering  of  3%  for  payment  in  10  days. 

The  discounts  allowed  in  manv  businesses  are  greatly  m  excess  ot  the 
prevailing  rate  of  interest.  Two,  three,  and  even  five  per  cent  for  payment 
in  ten  days,  when  the  full  amount  would  be  demanded  if  payment  were 
deferred  thirty  days,  is  not  unusual.  Two  per  cent  for  the  use  of  money 
twenty  days  amounts  to  36%  per  annum;  while  5%  for  twenty  days  is 
equivalent  to  90%  per  annum.  Maiiifestlx.  a  man  who  could  borrow 
money  at  the  legal  rate  would  not  fail  to  take  discounts  on  all  bills. 

Sales  Discount 

The  question  arises.  Why  does  the  seller,  when  he  can  borrow  money 
at  the  legal  rate  of  five  to  seven  per  cent,  allow  a  customer  so  large  an  amount 
for  prompt  payment  of  bills  r  Three  theories  are  advanced  in  connection 
with  this  question  :  First,  it  is  an  old  and  successful  expedient  of  business 
men  to  persuade  a  customer  that  he  is  the  object  of  some  special  consideration 
1  he  practice  of  giving  discounts  is,  doubtless,  in  a  measure,  an  outgrowth  ot 
this  mode  of  appeal,  although  ir  is  doubtful  whether  in  any  case  goods  are 
offered  any  cheaper  on  account  of  the  custom.  Second,  business  men  do  not 
ordinarily  have  enough  capital  to  enable  them  to  carry  a  large  amount  m 
customers'  debts,  and  discounts  are  allowed  to  induce  payment  in  order  to 
get  working  capital.  Third,  prompt  payment  shortens  the  period  of  indebt- 
edness, and  accordingly  decreases  the  risk  of  loss  from  bad  debts.  .Ml  ot 
these  reasons  probably  obtain  in  most  cases. 

15^ 


MERCHANDISE    DISCOUNTS 


159 


Since  the  purpose  whicli  a  thing  serves  determines  the  account  to  be 
char«i;ed,  it  is  necessary  to  assume  that  discounts  are  allowed  customers 
either  (i)  as  a  selling  expedient,  or  (2)  as  a  means  of  collecting  customers' 
debts,  or  (3)  to  avoid  the  necessity  of  borrowing  money  to  meet  current 
obligations.  Regarded  as  a  selling  expense,  the  item  should  be  deducted 
from  sales,  or  charged  to  the  trading  account;  regarded  as  an  operating 
expense,  it  is  properly  charged  to  Profit  l^  Loss;  regarded  as  a  means  of 
procuring  available  capital,  it  is  equivalent  to  interest  on  borrowed  money, 
and  should  be  treated  accordingly. 

If  we  conclude  that  sales  discount  is  offered  to  get  additional  working 
capital,  the  purpose  of  this  forfeit  to  customers  is  very  largely  to  meet  the 
accounts  of  creditors  from  whom  the  goods  were  bought,  and  thereby  take 
advantage  of  discount  ofterings  and  maintain  the  credit  standing  of  the 
business.  If,  however,  discounts  are  taken  all  around,  the  advantage 
gained  on  purchase  discount  is  partially  or  wholly  lost  on  sales  discount ; 
the  one  largely  or  entirely  cancels  the  other.  Under  such  circumstances, 
one  account  might  serve  to  cancel  the  two  elements,  thus  : 


Merchandise   Discoi 


N  I' 


Purchast-  discount  ofFtrcd 
Sales  discount  taken 


245 
162 

407 

Purchase  discount  taken 
Sales  discount  offered 


Failure  to  take  purchase  discount  would  result  in  a  loss  due  to  insuf- 
ficient capital,  thus: 

Merchandise   Discount 


Purchase  discount  offered 
Sales  discount  taken 


24s 
162 

407 

Sales  discount  offered 
Balance,  capital  charge 


162 

24s 


407 


The  failure  of  customers  to  take  discounts  (assuming  in  this  case  that 
all  purchase  discounts  were  taken)  would  result: 


Merchandise   Discount 


Purchase  discount  offered 
Balance,  capital  income 


24s 
162 

407 

Sales  discount  offered 
Purchase  discount  taken 


162 
245 


l6o  ACCOUNTS    AND    ACCOUNTINC    PRACTICE 

Purchase  Discount 

It  an  invoicf  of  j^oods  for  J^^oo,  bought  on  ttrnis  of  90  clays,  with  dis- 
count ottcrin^s  of  3 ';;  in  10  days,  2%  in  30  days,  and  i  ^",  in  ()0  days,  is  paid 
in  60  days,  what  is  the  vahie  of  the  goods  r  This  purchase  involves  an 
outlay  of  ^^495.  If  cash  were  paid  in  30  days,  there  would  he  an  outlay 
of  )^490 ;  and  if  cash  were  paid  in  10  days,  there  would  he  an  outlay  ol 
$^S^.  If  the  value  of  a  thing  actjuired  by  purchase  varies  with  the  vary- 
ing terms  of  credit,  what  should  he  the  hasis  of  valuation  when  the  inventory 
is  taken  r  If  goods  are  to  be  inventoried  at  cost,  obviously  cost  should 
not  niclude  discount  ofternigs. 

A,  who  has  limited  capital,  buys  goods  for  ^500;  B,  who  has  sufficient 
capital,  buys  the  same  goods  for  ^^4^;;.  B  covers  up  his  deficiency  by  in- 
ventorying the  goods  at  J^^OO,  and  apparenrlv  suffers  no  disadvantage  m 
comparison  with  A.  ()i.  A  buvs  goods  iiiNontti  at  }^500,  witii  a  discount 
ottering  of  3';;  in  10  days,  and  settles  the  account  for  ^4Ss.  It  he  charges 
his  goods  account  ^^500,  and  credits  Purchase  Discount  $1^,  he  has  ap- 
parently made  a  proHt  of  ^^15  by  buylti^  goods  for  what  they  are  worth. 

Notwithstanding  these  considerations,  the  practice  of  charging  Pur- 
chases, or  Mrrchauilisr,  with  the  gross,  instead  of  the  net,  price  is  well-nigh 
universal.  Some  bookkeepers  credit  Purchases  with  discounts  taken; 
but  this  is  not  practicable  when  discounts  are  taken  on  purchases  other  than 
merchandise.  And  if  it  were  practicable,  matters  would  not  be  remedied 
unless  all  discounts  were  taken  and  goods  were  inventoried  at  the  net  cost. 

Manifestly  goods  are  worth  what  they  cost  in  cash  and  no  more. 
Purchases  should  accordingly  be  charged  with  the  net  amount  when  the  pur- 
chase entry  is  made,  and  Purchase  Discount  should  be  charged  with  the 
discount  offered.  When  discounts  are  taken.  Purchase  Discount  should  be 
credited,  as  usual,  through  the  cash  book.  The  balance  of  this  account,  it 
any,  will  be  the  amount  forfeited  by  failure  to  take  discounts. 

The  logic  of  the  situation  requires  us  to  show,  not  what  an  adequately 
capitalized  business  makes  by  buying  goods  to  the  best  advantage,  but 
what  one  of  insufficient  capital  loses  in  consequence.  Moreover,  a  loss  from 
this  source  should  be  charged,  not  against  the  earnings  of  its  trading  ac- 
tivities, but  against  its  capitalization.  Purchase  Discount,  as  well  as  Sales 
Discount,  should  be  closed  into  a  subsection  of  the  Profit  ^  Loss  account 
after  the  net  proHt  has  been  stated.  This  view  is  illustrated  in  the  pro- 
cedure of  the  ne.xt  exercise. 

Whether  or  not  the  matter  of  segregating  purchase  discount  and  sales 
discount  regarding  tiiem  as  activities  wholly  apart  from  trading  —  is  of 
sufficient  practical  importance  to  justify  the  reciuiied  extra  labor,  is  another 
question.  The  accounting  student,  however,  should  be  aware  of  the  extent 
to  which  practical  considerations  require  him  to  ignore  accounting  principles. 


FURNITURE    BUSINESS 


l6l 


Freight  Allowed 

In  some  lines  of  business,  notably  those  of  furniture,  luml)er,  building 
materials,  ere,  materials  arequoted  at  prices  that  include  the  cost  of  delivery, 
-that  is,  f.  ().  b.,  buyer's  place,  —  with  the  understanding,  however,  that 
the  bu\er  will  pay  the  freight  when  the  shipment  arrnes  and  chaige  the 
payment  back  to  the  seller.  Payment  of  freight  amounts  to  a  part  payment 
of  the  invoice.  Under  such  circumstances,  each  freight  bill  must  be  entered 
separately  in  the  cash  book,  and  posted  to  the  personal  account  in\'olved, 
unless  some  means  is  devised  to  avoid  this  labor.  If  the  freight  bill  can  be 
procured  with  each  delivery,  the  seller  may  be  credited  with  the  invoice 
amount  less  the  freight^  and  Freight  Allozved  account  credited  with  the  freight. 
When  freight  is  paid,  charge  Freight  Allozved  for  the  amount.  This  method 
necessitates  the  use  of  a  "  Freight  Allowed  "  column  both  in  the^purchase 
book  and  in  the  cash  book.  The  method  explained  above  is  illustrated  in 
the  following  exercise. 

FURNITURE   BUSINESS 


Exercise  21 

March  31,  19 — .  The  following  trial  balance,  covering  a  period  of  six 
months,  is  taken  from  the  ledger  of  Henry  l^rewer  who  is  the  proprietor  of 
a  furniture  business. 

Trial  Balance,  March  31,  19 — 


Henry  Brewer,  Capital 

20000 

Henry  Brewer,  Private 

437 

10 

Cash 

654 

85 

Accounts  Receivable,  Sched.  A 

312 

50 

Stock  of  Furniture 

161 12 

Office  Furniture  and  Fixtures 

457 

89 

Delivery  Kcjuipnunt 

4805 

56 

Purchase  Discounts  Offered 

20 

07 

Trade  Creditors,  Sched.  B 

1003 

50 

Petty  Accounts  Pa\able,  Sched.  C 

50 

I'urcliasi-s 

12136 

32 

Sales 

17124 

70 

Freight  Allowed 

20 

Selling  Fxpense 

1051 

General  Kxpense 

800 

71 

Delivery  Expense 

1 193 

70 

Advertising 

216 

50 

38198 

20 

?Sro^ 

20 

l62  ACCOUNTS    AND    ACCOrNTING    PRACTICE 

The  following  schedules  are  an  exhibit  (.-/)  of  the  unpaid  customers' 
accounts,  and  {B,  C)  the  unpaid  creditors'  accounts,  and  (  D)  the  inventories, 
March  31. 

SCHKDULE    A 

Albert  Austin,  inv.  2  '26, 

Henjaniin  lirooks,  inv.  2   30, 

Charles  Conerty,  inv.  2    18,  52.50       5^312.50 

SCHKDUI.K    B 

Donald  &:  Dwight,  inv.  3  '28,  terms  2/15, 

1^.  J.  Eagan  &  Co.,  inv.  3    20,  terms  2   30  n/6o, 

1  .  \V.  &  A.  Furges()n,in\ .  3   3,  terms  2/30  n '60,  188.50     }?ioo3.50 


U7S- 

85. 

52. 

50 

$486. 

329. 

188. 

50 

$32. 

50 

17- 

.^o 

$16265. 

14 

30. 

000. 

000. 

Sen  HDL' IF    C 

1'  rank  R.  \\  ilson,  5  1\  coal, 

John  ^  ouni:,  stationery  and  office  supplies,  i7>o         $50. 

SCHEDULI:    I) 

Stock  of  furniture, 

Une.xpired  insurance,  charged  to  Expense, 
Delivery  equipment,  book  value,  less  10%, 
Office  furniture,  book  value,  less  5%, 

$0000.00 

Prepare  a  business  and  financial  statement. 

From  Henry  Brewer's  balance  sheet  of  March  31,  open  the  ledger. 
Arrange  and  space  accounts  as  directed  below.  The  numbers  in  parenthesis 
indicate  the  number  of  lines  required.  If  space  is  not  indicated,  give  eight 
lines. 

Page  I,  Henry  Brewer  (Capital),  Henry  Brewer  (Private),  Cash,  and 
Stock  of  F'urniture;  page  2,  Purchases,  Sales  (10),  Freight,  Purchase  Dis- 
count; page  3,  Selling  Expense  (10),  Deliverv  Expense  (10),  General  Ex- 
pense (i  5)  ;  page  4,  .Advertising  (5),  Insurance  &:  Taxes,  Upholstery  Supplies, 
Repairs  &:  I  pholstermg.  Delivery  Ecjuipment  (5);  page  5,  Office  lurniture 
(5),  Pay  Roll,  Reserve  for  Depreciation  (5),  Reserve  for  Bad  Debts  (5). 
Profit  &  Loss  (15);  pages  6  and  7,  Accounts  Receivable  (5),  customers' 
accounts  (5  each);  pages  8  9,  and  10,  trade  creditors  (6  each);  page  10, 
Petty  Accounts  Payable  (15). 

The  books  employed  are  cash  book,  sales  book,  purchase  book,  journal, 
and  ledger. 

Enter  the  followmg  transactions  : 


FURNITl-RK    BUSINESS  1 63 

(Your  place)  April,  19 — 

2 
Open  cash  book  with  the  cash  balance,  ^^654. 85,  and  enter  the  amount 
short. 

Sell  Lewis  Lincoln  on  account : 

2  f  3  brass  beds   ^  $26,  5^52. 

2  #12  hair  mattresses   ©$15.50,  31.  $83. 

Pay  F.  W.  &  A.  Fur»i;eson  for  inv.  3d  ult.,  less  2%, 
Cash  sales  for  the  day,  i^^oO 

Apr.   3 

Buy  of  Wright  Brothers,  terms  2,  20: 

I  doz.  G.  O.  dining  chairs   @  $3.25  ea.     ^^39. 

\  doz.  G.  O.  dining  tables   @  $22.50  ea.    67.50     $106.50 

Less  freight  allowed,  5.76     $100.74 

Pay  United  States  Telephone  Co.  April  account  8. 

Apr.  4 

Receive  of  Albert  Austin  for  invoice  of  26th  ult.,  $175. 

Pay  Frederick  Long,  agent,  April  rent  of  store  and  outbuildmgs,  $100. 

Apr.  5 

Sell  Nassau  Hospital,  terms  cash  on  approval  of  furnishings  (contract 
signed  April  2),  furniture  and  furnishings,  $6875. 

Apr.  7 

Pav  W.  Jones,  bookkeeper,  $18;  H.  Macy  and  G.  Hinds,  salesmen, 
$20  each  ;  Fred  Burch,  assistant,  $10,  $68.  (Charge  bookkeeper's  salary  to 
Office  Expense;   salaries  of  salesmen  and  assistant  to  Selling  Expense.) 

Apr.  9 

Pay  Central  Railway  weekly  freight  account,  $25.76. 
Buy  of  the  Holdridge  Furniture  Co.,  1/15  n/30: 
^  doz.  china  closets  (r?.  $9.50  each,  $57. 

Freight  allowed,  3.      $54. 

Pay  postage  and  petties,  $2.50 

Apr.  10 

Sell  C.  A.  McTigue  on  account : 

6  reed  rockers  @  $2,  $12. 

I  #46A  bedroom  set,  78.     $90. 

Cash  sales  for  the  day,  $65. 


164  ACCOUNTS   AND   ACCOUNTING   PR.\CTICE 

Apr.  12 

Pay  Donald  &:  Dwi^lu  for  invoice  ot  28rli  ult.,  less  2%. 
Cash  sales  for  the  day,  ^^8.50. 

Apr.  13 

Sell  Albert  Austin  on  account : 

\  do/.  ,«S3  tables   (a,  i^n  each,  J^66. 

\  doz.  j^i09  tables   ^1  $13  each,  78.     ^^144. 

Apr.  14 
Pay  wages  of  salesmen,  ^50;  ofHce  help,  in  full  to  date,  ^18,  $68. 

Apr.  16 

Receive  of  Benjamin  l^rooks  for  invoice  of  30th  ulr..  .^85. 
Pay  petty  e.xpenses  —  car  fares,  office  supplies,  etc.,  $3.50. 
Pay  Central  Railway  weekly  freight  account,  $3. 
Cash  sales  for  the  day,  $86.70. 

Apr.  17 
Pav  accounts  of  I'raiik  R.  Wilson,  ,^32.50,  and  John  "\'ounp,  ,^17.50,  ,^^50. 

Nun;. —  1  In sc  items  were  jnircliascd  in  M.ircli  and  charged  to  Expense,    March   31. 
Vou  should  nnu  iharpc  Petty  Accounts  and  credit  Cash. 

Apr.   18 

Receive  of  Charles  Conerty  for  invoice  of  30th  ult.,  $52.50. 

Cash  sales  for  the  day,  $4. 

Receive  of  Nassau  Hospital  on  contract  of  April  2,  $1000. 

Apr.  19 
Pay  E.  J.  Eagan  &  Co.  for  invoice  of  20th  ult.,  less  z%. 

Apr.  20 

Buy  of  Donald  &  Dwight,  terms  2/10  n/30: 

\\  doz.  saddle  seat  rockers   ([i  $2.50  each,       $45. 

\  doz.  veneer  seat  rockers  ^.  $3  each,  18.     $63. 

Freight  allowed,  1.55     $61.45 

Buy  of  Barnes  Brothers,  net  cash,  less  3%: 

I   roll    -iS  blue  F  tissue  paper, 

I  roll  jfU)  blue  F  tissue  paper,  76;,    (^   5  ^  f ,  $4.18. 

Apr.  21 
Pay  National  E.xprcss  Co.  charges  on  parcel  of  paper  4/20,  50 fi. 


FURNITURE    BUSINESS  165 

Sell  James  Wilson,  net  cash  : 

I  #104  dining  room  set  complete,  ^225. 
Pay  wages  of  salesmen  ^50,  office  lulp  ,^iS,  in  full  to  date,  $6S. 
Buy  of  the  Daily  Herald  advertising  space,  terms  net  cash,  ^53.75. 

Apr.  23 

Receive  of  Lewis  Lmcoln  for  invoice  of  the  2d  inst.,  ^^83. 
Pav  Central  Railway  weekly  freight  account,  ^1.55. 
Pay  Wright  Brothers  for  invoice  of  the  3d  inst.,  less  2%. 

Apr.  24 

Buy  of  Frazer  &  Gibbs,  hospital  furnishings  and  supplies,  n/30,  ^1800. 
Pay  the  Holdridge  Furniture  Co.  for  invoice  of  the  9th  inst.,  less  i  %. 
Receive  of  the  Nassau  Hospital  on  contract  of  April  2,  ^1000, 
Sell  Walter  Carr  on  account : 

I  #34  W.  O.  Morris  chair,  lea.  uph.,  $^6. 

6  #877  lea.  uph.  diners,  @,  ^5.50,  33. 

I  #38  ex.  table  O.  E.  finish,  42.     ^iii. 

Hicks    Garage    renders    bill    for    storage    and    repairs,    $16.     (Charge 
Delivery  Expense.) 

Buy  of  McEvoy  &  Son  50  gal.  gasoline  @  16^,  $S. 
Cash  sales  for  the  day,  ^25.75. 

Apr.  25 

Receive  of  C.  A.  McTigue  for  invoice  of  loth  inst.,  ^90. 

Sell  Benjamin  Brooks,  terms  cash  ^100,  balance  on  account. 
I  tap.  uph.  parlor  set  9  pes.,  ^175- 

I  bird's-eye  maple  bedroom  set,  104.     ^279. 

Cash  sales  for  the  day,  i5io. 

Apr.  27 

Receive  of  Benjamin  Brooks  to  applv  on  invoice  4/25,  ^100. 
Pay  Barnes  Brothers  for  invoice  of  20th  inst.,  less  3%. 

Note.  —  Folio  this  item  as  having  been  posted  from  the  purchase  book  to  the  cash 
book,  i.e.  write  in  the  folio  column  of  the  purchase  book  C  i,  and  in  the  cash  book  P  I. 

Receive  of  James  Wilson  for  invoice  of  21st  inst.,  ^225. 
Receive  of  Albert  Austin  for  invoice  of  13th  inst.,  ^^144. 

Apr.  28 

Pay  wages  of  salesmen,  j^^o;  office  help,  in  full  to  date,  J5l8,  ^68. 
Buy  of  Goodyear  Brothers,  cash  less  2%,  i  auto  tire,  $30. 
Pay  National  Express  Co.,  charges  on  tire,  75  d. 


t66 


ACCOUNTS   AND   ACCOUNTING   PRACTICE 


April,  19— 


Purchase 


Inv. 

No. 


Day 

Fol. 

'                      Creditors 

Tirms 
2  20 

Particulars 

3 

Wright  Brotliers 

Dimnj;  room  chairs 

9 

Holilridm-  Fiiinirurc  Co. 

I    1 5  n  '30 

China  closets 

20 

Donalil  vk  Dwi^lit 

2,  10  n  30 

Roclcers 

20 

Ci 

Barnes  Hrorlu-rs  (P.  A.) 

yi  Cash 

Paper 

2! 

Ci 

Daily  Htrald  (P.  A.) 

n/c 

Advertising 

24 

Frazer  &:  (jihbs 

n  30 

Hospital  furniture 

-4 

McEvov  &  Son  (P.  A.) 

n/c 

50  pal.  pasoline 

24 

Hicks  Garage  (P.  A.) 

n  c 

Storage  and  repairs 

2.S 

Goodyear  Brothers  (P.  A.) 

2<[  Cash 

Tire 

Journal  page  I 

.1 

4 

5 
6 

7 
8 


Ikiiry  lirewer  draws  from  the  luismess  tor  personal  use,  }?ioo. 
Pay  the  Daily  Herald  advertising  account  of  21st  inst.,  ^53.75. 
Cash  sales  for  the  day,  $86. 

Apr.  30 

Pay    1- .   Smith  $60,  J.   Adler  ^^75,  wages   for  month   of  April.    Si  35. 
Charge  Delivery  Expense. 

Pay  petty  expenses        postage,  car  fares,  charity,  sundries,  $5.25. 

Pay  Donald  &:  Dwight  for  invoice  of  20th  inst..  less  2%. 

Determine  the  amount  of  cash  you  should  have  on  hand.  Close  all 
books  of  original  entry.  Exhibit  the  summary  of  the  purchase  book  in 
the  form  of  a  journal  entry.  Post  and  take  a  trial  balance.  Prepare  a 
business  and  financial  statement,  and  close  the  ledger. 

Inventories:  Stock  of  furniture,  ^513432;  delivery  equipment,  ,^4325; 
office  furniture,  ^^435;  prepaid  insurance.  ,^^15;  cash,  $1950.35.  Book 
accounts   are  considered  good. 

I  he  following  items  unpaid  .should  be  taken  into  account  :  Wolverine 
(  )i!  Co.,  for  gasoline  and  lubricants,  $100.60;  Municipal  Lighting  Co., 
lighting  bill  for  the  month  (estimated),  $9.75;  salesmen's  salaries,  $8.33: 
office  help,  $3.  Goods  to  the  value  (cost)  of  $1235  have  not  been  delivered 
to  the  Nassau  Hospital  on  our  contract  of  April  2. 

Expense  items  that  represent  values  consumed  in  April  must  be  charged 
to  the  April  account,  regardless  of  the  date  of  settlement. 

The  Sales  account  received  credit  for  the  Nassau  Hospital  contract 
ot  .\pril  2.     Goods  undelivered  on  this  contract  are,  of  course,  included  m 


rURNITURE    Bl'SlXESS 


167 


Register 


(Henrv  Brewer) 


Sundries 
Cr. 

1 
Freight 
Cr. 

1 

I'urchases 
1         Dr. 

Purchase 

Discount 

Dr. 

Sundries 
Dr. 

Fol.  ' 

1 

100    74 

5 

7^.' 

104 

4^; 

2 

01 

54 

3 

^^> 

46 

54 

1 
1 

61    45 

I 

55 

61 

77 

I 

23 

1 

1 

4    18 

U 

4 

05 

53    7S 

53 

75 

1800 

1800 

8 

8 

16 

16 

30 
2128 

12 

4 

1 

60 

29 

40 
20 

10 

31 

2022 

72 

51 

1 

1 1 1 

1 

1 

t 

1 

Fol.      Sun.  Accts.  Dr. 


Gen'l  E.xpense 
Advertising 

Delivery  Exp. 
Delivery  Exp. 
Delivery  Exp. 


I 


the  inventory  of  April  30,  thereby  decreasing  the  charge  to  the  Salt's  account 
h\  the  cost  of  such  goods.  1  his  item  may  be  adjusted  by  debiting  Sales 
(.April  account)  and  crediting  Sales  (May  account)  for  the  amount  involved. 
During  the  following  month  (May)  wages  and  salaries  will  be  handled 
in  a  different  manner.  All  payments  on  account  of  wages  and  salaries  will 
be  charged  to  Pay  Roll.  When  the  books  are  closed,  this  account  will  be 
transferred  to  the  various  expense  accounts  involved.  Pay  Roll  should  ac- 
cordingly be  credited  in  closing  the  April  ledger  with  the  unpaid  wages 
noted  on  page  166. 

May,  19 — 

The  narrative  for  May  is  a  continuation  of  the  furniture  business  of 
Henry  Brewer.  An  upholstery  department  is  to  be  conducted.  It  is 
thought  that  one  experienced  man  can  do  all  the  work  at  present,  besides 
refinishmg  goods  that  come  by  freight  in  a  slightly  damaged  condition. 
.An  account  is  to  be  opened  with  the  upholstery  work  to  determine  its  cost 
and  earnings.  Materials  and  supplies  purchased  for  this  work  will  be 
charged  to  Upholstery  Supplies.  At  the  end  of  the  month  the  workman  in 
charge  will  report  the  cost  of  material  used,  at  which  time  this  account  will 
be  given  credit,  and  Repairs  and  Upholstering  account  will  In-  charged. 
1  his  latter  account  will  also  be  charged  at  the  end  of  the  month  with  the  cost 
of  labor,  and  given  credit  from  time  to  rinu-  for  what  ir  earns. 

1  he  student  will  assume  that  the  sales  book  is  being  kept  bv  the 
assistant  bookkeeper,  and  that  accounts  with  customers  are  kept  in  a 
separate  ledger.      To  take  the  place  of  these  accounts  in  the  general  ledger. 


l68  ACCOUNTS   AKD   ACCOUNTING   PRACTICE 

open  an  Accounts  Rfctivahlf  account.  (Sec  pa^c  iS8.)  Do  so  at  once  and 
charge  this  account  with  the  total  of  customers'  balances,  ^5165,  as  shown 
by  your  April  statement. 

Hereafter,  as  payments  are  received  from  customers,  credit  .Iccounts 
RecfivabU  by  entering  the  amount  in  the  "  Accounts  Receivable  "  column 
on  the  left  page  of  the  cash  book.  At  the  end  of  the  month  the  total  of 
credit  sales  will  be  given  you,  at  which  time  you  should  charge  Accounts 
Receivable  and  credit  Sales.  This  treatment  will  require  that  the  left  page 
of  the  May  cash  book  have  special  columns  as  follows:  ".Accounts 
Receivable."  "  Cash  Sales,"  "  Cieneral  Ledger."  In  opening  the  May  cash 
book  enter  the  cash  balance  short. 

May  I 

I.niploy  J.  Rose,  experienced  upholstcui,  .it  >22  a  week. 
Pa\  annual  automobile  tax,  }^20. 
Cash  sales  for  the  dav,  S;:/>o. 

May  2 

l*ay  (loodyear  Hiotheis  toi  invoice  of  zSth  ult.,  ^1^30,  less  2%. 
iUiy  of  Rochester  Supply  Co.,  2    10.  upholstery  supplies,  $187.   (Charge 
Upholstery  Supplies.) 

Pay  car  fares  and  petties,  i^i.6o. 

May  3 

Pay  F.  Long,  agent,  rent  for  May,  i^ioo. 

Buy  of  Cireene  Hrass  Bed  Co.  4   10  n    30: 

\  doz.  #678  3/     beds    i<i  >^i8.75each,    ,^112.50 

X  do/.  «'679  4  6  beds   fe.  ^520.50  each,      123.         $235.50 

Freight  allowed,  6.90     $228.60 

May  4 

Pay  Municipal  Lighting  Co.  .April  account,  ,^';.75. 
Pay  the  United  States  Telephone  Co.  NLiy  service,  $S. 
Pay  McEvoy  &  Sons,  invoice  24th  ulr.,  $8. 
Pay  Hicks  Garage,  invoice  24tli  ult.,  $16. 
Cash  sales  for  flu-  day,  $82. 

May  5 

Henry  Brewer  draws  cash,  $100. 

Buy  of  the  Michigan  I'urniture  Co.  3/5  n/30: 

1  doz.  #ioiA  bookcases   (a\  $14  each,        $84. 

2  doz.  #5'''  n.  R.  chairs   («  $2.40  each,        57-6o 

\  doz.  1^87  oak  rockers   C"  $8.65  each,         -5-95     ,^167. 55 
Freight  allowed,  18.20 


FURNITURE   BUSINESS  i6q 

Buy  of  Saks  &  Peet,  net  cash,  invoice  upholstery  suppHes,  )5i26.50. 
Pay  wages,  office  and  store  pay  roll,  ^586.33.     (Debit  Pay  Roll.) 

May  7 

Receive  of  Nassau   Hospital  on   ct)ntract  of  April  2,  yJzooo.      (Credit 
Accounts  Receivable.) 

Buy  of  the  Empire  Varnish  Co.,  invoice  upholstery  materials,  $46.75. 
Cash  sales  for  the  day,  ^596. 75. 

May  8 

Buy  of  F.  W.  &  A.  Furgeson  3/10  2   30  n/60: 

2  doz.  felt    mattresses  #1234   @,  $6.60  each,    $158.40 
2  doz.  felt    mattresses  #1230   @i  $5.40  each,      129.60 

1  doz.  hair  mattresses  #1240   @  $8.25  each,        99.         $'!)'^7- 
(These  prices  are  f.  o.  b.  shipper's  place.) 

Pay  telegrams  and  petties,  $3.20. 

Receive  of  F.   Abbot    in    full    of   account,   $86.45.     (Credit   Accounts 
Receivable.) 

Receive  cash  for  upholstering  and  repairs,  $22.50.     (Credit  Repairs  l^ 
Upholstering.) 

May  9 

Pay  Central  Railway  freight  account  to  date,  $38.40, 

Buy  of  Edward  Scott,  net  cash,  upholstery  supplies,  $16.85. 

Return  to  Green,  Brass  Bed  Co.  : 

2  #679  beds  (damaged)    @  $20.50,  $41. 

Note.  — Set  aside  7  lines  at  the  end  of  your  Purchase  Book  for  returned  purchases. 
Since  Purchase  Discount  was  charged  on  the  3d  instant  when  these  beds  were  bought  with 
4';  of  cost,  it  must  now  be  credited  at  the  same  rate.  Debit  the  Greene  Brass  Bed  Co. 
with  the  gross  amount;    credit  Purchases  with  the  net  amount. 

Pay  Saks  &  Peet  for  invoice  of  the  5th  inst.,  $126.50. 
Cash  sales  for  the  day,  $5. 

May  10 

Buy  of  Donald  &:  Dwight  2    10  n   30: 

\  doz.  veneer  seat  rockers   ^.  $3  each,  $18. 
Freight  allowed,  .90 

Buy  of  the  Mall  Manufacturing  Co.  4/10  n/30: 

I  do/.  Hoosier  kitchen  cabinets   ^/.  $18.50  each,  $222. 
Freight  allowed,  •6.75. 

Pay  Michigan  Furniture  Co.  for  invoice  of  the  5th  inst.,  less  3%. 

May  II 
Receive  of  Benjamin  Brooks  balance  due  on  invoice  of  26th  ult.,  $179. 


IJO  ACCOUNTS   AND   ACCOUNTING    PRACTICE 

Pay  postage  and  petties,  i'>3.75. 

Cash  sales  for  the  clay,  5^128.40. 

Receive  cash  on  upliolstery  account,  Uj.^o. 

May  12 

Recfivi-  of  Nassau  Hospital  for  invoice  of  3d  inst.  (extras),  $176.50. 
Buy  of  the  Standard  lurniture  Co.  3/10: 

\  doz.  oak  ortice  desks  («  ^^47. 50  each,  ^2^>,. 

I  doz.  oak  ortice  desks  (a  $56  each,  336.       $621. 

I'rcipht  allowed  3^-50     $584.50 

Pay  Rochester  Supply  Co.  for  invoice  of  the  2d  inst.,  less  2%. 
Pay  wages,  office  and  store  pay  roll,  ,^90. 

May  14 

Pay  the  Greene  Brass   Bed  Co.  for  invoice  of  the  3d  inst.,  less  4%. 
Deduct  from  this  invoice  the  returns  of  9th  inst. 
Receive  of  Mr^.  I'  .  W.  King  on  account.  ^100. 

May  15 

Charge  Donald  &  Dwight  repairs  to  rockers,  material,  and  labor,  ^^3.60. 
(Credit  Repairs  b"'  U pholsliring  account  for  this  item.) 

''"^    of  John  ^'oung  stationery  and  ofHce   supplies   (Pt'tty  accounts), 

Receive  of  the  Palmer  House  in  full  of  account,  ^5268. 

May  16 

Hu\  ot  tile  llorncks  Sprinj;  Co.,  net  cash  f.  o.  b. : 

I  doz.  #34  springs   (r»  ^^5.50  each,  i^66. 

I  iloz.  §6y  springs   (a  J?6.25  each,   75.     ^^141 
Pay  Central  Railway  weekly  freight  account,  ^^58. 85. 
Receive  of  (1.  E.  Slocum  in  full  of  account,  ^^18.50. 

May  17 

Receive  of  the  Nassau  Hospital  (M1  contract  of  April  2,  }^2000. 
Pay  \  .  \\  .  &;  A.  lurgeson  for  invoice  of  the  8th  inst.,  less  3%. 
Cash  sales  for  the  day,  $112. 

May  18 

Buy  of  Thatcher  Manufacturing  Co.  4    10: 

^  doz.  #2435  refrigerators   (<;  ^^14. 75  each,    ^^88.50 
\  doz.  l>2.\yo  refrigerators   («  ^^23  each,  138.  }^226.50. 

1*  reight  allowed,  I  2.30 

Pay  c;ir  fares  and  petties,  yii.40. 

Return  llorricks  Spring  Co.: 
I  K7  spring   (</  $6.25. 


FURNITURi:    BUSINESS  I71 

May  19 

Pay  the  Horricks  Spring;  Co.  for  invoice  of  the  i6th  inst.,  less  returns. 
Pay  wages,  office  and  store  pay  roll,  ^90. 
Cash  sales  for  the  day,  ^17.40. 

May  21 

Make  the  followinj:;  payments  : 

Donald  6:  Dwigln,  mvoice  of  the  loth  inst.,  less  2%. 

Hall  Manufacrurino;  Co.,  invoice  of  the  loth  inst.,  less  4%. 
Refund  Mary  Sheldon  on  furniture  returned,  i5io.50. 

May  22 

Pay  John  Young  for  invoice  of  the  15th  inst.,  $6.70. 
Cash  sales  for  the  day,  ^88. 

ft 

May  23 

Buy  of  E.  J.  Eagan  &  Co.,  2/30  n/60: 
6  bedroom  sets   (a  $j6,  ^^456. 
Freight  allowed,  24.75 

Pay  Standard  Furniture  Co.  invoice  of  the  12th  inst.,  less  3%. 

May  24 

Pay  petty  expenses,  ^3.65. 

Receive  of  R.  S.  Kingsley  on  account,  ^75. 

Pay  Frazer  &  Gibbs  for  invoice  of  the  24th  ult.,  $1800. 

Hicks  Garage  renders  bill  for  auto  storage  and  repairs,  ^^12.75. 

May  25 

Buy  of  the  Holdridge  Furniture  Co.  115  n  30 : 

Invoice  china  closets,  serving  tables,  etc.,  ^516. 
Freight  allowed,  ^32.20 

Pay  Hicks  Garage,  account  of  the  24th  inst.,  ^^12. 75. 
Receive  of  the  Riverside  Realty  Co.  in  full  of  account,  ^95. 

May  26 

Receive  of  Walter  Carr  for  invoice  of  the  24th  ult.,  ^iii. 
Charge  E.  J.  Eagan  &:  Co.  for  refinishing  bedroom  sets,  i^io.75. 
Receive  cash  for  account  of  upholstering  work  : 

Mrs.  Irene  Waldo,  ^18.20 

W.  S.  Phelps,  20.10     ^^^38. 30 

Pay  wages,  office  help  and  store  pay  roll,  ^^90. 


172  ^,,-.^vTS    AND    ACCOUNTING    PRACTICE 

May  28 

Receive  of  Nassau  Hospital  balance  on  contract  of  April  2,  $^7^. 
Pay  car  fares  and  petties,  )^i.75. 

May  29 

Pay  lliatLlur  Maiuit^icrurin^  L'o.  for  invoice  of  the  i8th  inst.,  less  4%. 
Receive  of  1^.  M.  Booth  in  full  of  account,  i?40.50. 
Cash  sales  for  the  day,  ^528.75. 

May  31 

Pay  Kdw.  .>cotr  for  invoice  of  Mav  9,  J^i^.S^. 

Pay  the  Wolvtrint-  Oil  Co.  in  full  of  account,  J^ioo/)0. 

Pay  V.  Snnth  ^60,  J.  Adler  ^^75,  wages  for  the  month  of  May,  !^l}S- 
(Charge  Delivery  Expense.) 

Cash  sales  for  the  day,  ^296. 

Pay  postage  and  petties,  ^5.80. 

Charge  Pay  Roll  account  with  i^6o  unpaid  wages  (4  days)  and  dis- 
trihutf  wages  for  the  month  as  follows:  Office  Expense,  ^81;  Selling 
Expense,  ^^225  ;  and  Repairs  and  Upholstering,  ^^99.  Credit  June  Pay  Roll 
with  liability  of  unpaid  wages,  }^6o. 

Credit  Sales,  $i\C^.  I'pholstery  work  on  credit,  <^^.  ( Debit  ./<- 
rmmts  Receivable  for  these  items.) 

Close  books  of  original  entry,  post  and  take  a  trial  balance,  dated 
May  31,  19 — .  Prepare  a  business  and  financial  statement,  and  close  the 
ledger. 

Inventories:  Stock  of  merchandise,  ^^13406. 20;  upholstery  materials 
in  stock,  5^296.86 ;  delivery  equipment  has  depreciated  2'(,and  office  furni- 
ture, 1*;^.  Reserve  5^7  of  accounts  receivable  for  possible  b;id  debts. 
Municipal  Lighting  Co.'s  bill  for  May  service,  ^^7.50,  unpaid.  WOlverine 
Oil  Co.'s  account  for  gasoline  and  lubricants  (estimated),  ^^87. 50.  Assume 
that  other  assets  and  liabihries  are  as  indicnrrd  hv  the  nrrounrs. 

Reserves 

Selling  goods  on  credit  almost  always  results  in  a  loss  from  bad  debts. 
The  extent  of  this  loss  depends  upon  the  credit  policy  of  the  business.  If, 
however,  under  a  uniform  credit  policy  covering  several  years,  a  certain 
per  cent  of  customers'  debts  has  proved  worthless,  it  is  reasonable  to  assume 
that,  under  a  similar  credit  policv,  approximately  the  same  losses  will 
result.  If  we  had  the  foresight  to  tell  which  of  our  customers  will  fail  to 
meet  their  obligations,  losses  might  be  prevented.  But,  since  we  are 
certain  that  losses  will  occur,  it  is  our  dutv  to  anticipate  those  losses  as 
nearly  as  possible  antl  charge  them  to  the  period  responsible  for  the  credits 
mvolved.      I  his  mav  be  doni'  bv  charging  Profit  U  Loss  and  crediting  Reserve 


RESERVES 


'73 


for  Bad  Debts  with  such  an  amount  as  our  experience  justifies  us  in  believ- 
ing we  shall  lose  on  outstandinjj;  customers'  debts.  In  the  foregoing  exercise 
this  figure  is  placed  arbitrarily  at  5%.  The  book  value  of  these  debts  we 
know  to  be  in  excess  ot  their  real  value,  and  the  reserve  prevents  overstat- 
ing our  profit.  Reverting  to  the  fundamental  law  of  debit  and  credit; 
namely,  that  things  owned  are  debtors  and  the  owners  thereof  creditors,  if, 
for  practical  reasons,  we  are  unable  to  show  decreases  in  the  value  of  things 
owned  when  such  decreases  actually  exist,  we  accomplish  tluir  reduction 
by  setting  up  on  the  opposite  side  a  dummy  owner,  who  is  later  charged 
with  actual  shrinkage,  and  whose  "property  right"  is  thereby  canceled. 
This  dummy  owner  we  call  a  "  Reserve." 

As  losses  occur  from  bad  debts,  they  are  charged  to  Reserve  for  Bad 
Debts ;  and  if  subsequent  events  show  that  we  have  reserved  too  much  or 
too  little,  the  error  may  be  rectified  by  decreasing  or  increasing  the  amount 
of  the  reserve. 

In  the  same  way,  shrinkage  from  discounts,  depreciation,  etc.,  may  be 
anticipated,  and  the  loss  charged  to  the  period  in  which  it  really  occurs,  by  set- 
ting up  a  reserve. 

The  function  of  the  Reserve  account,  then,  is  to  properly  allocate  losses 
that  each  fiscal  period  may  be  made  accountable  for  its  own  shortcomings. 


STATEMENTS 

riurc  are  many  different  forms  of  the  business  and  financial  statement, 
just  as  there  are  many  different  ways  of  ^i\in^  concrete  expression  to  any 
order  of  facts.  It  is  cjuite  impossible  to  prescribe  one  form  that  will  ade- 
quately meet  all  conditions.  So  ion^  as  the  form  used  brings  out  clearly 
just  what  the  one  for  whom  it  is  intended  wants  to  know,  the  purpose  of  the 
statement  has  bn-n  accomplished.  I  wo  points  may  be  emphasized:  hirst, 
the  statement  should  tell  the  whole  truth  ;  ir  should  anticipate  and  answer 
questions  that  the  proprietor  is  likely  to  ask  concerninji  the  details  of  his 
business.  Second,  technical  forms  of  expression  that  a  bookkeeper  may 
readily  interpret  may  suggest  nothing  to  the  proprietor,  or  manager. 

Account  Form 

I  he  torm  ot  business  and  financial  statement  used  in  the  preceding 
work,  called  the  "  account  form,"  is  the  one  most  generalK  used,  with  some 
modifications  or  expansions,  by  accountants. 

Report  Form 

The  following  form  of  statement,  called  the  "report  form,"  is  perhaps 
more  easily  interpreted  than  the  account  form  and  seems  to  be  growing  in 
favor  with  business  men. 

BUSINESS  AM)   1  INA.NCIAL   SIAILML.NT  (Charles  Ford) 

Period  Endfd  Jan.  o.   19 — 

Trading  Section 
Sales  for  the  period  87462. 

Deduct  returns  and  .illowances  ;  i  2  S4 

Net  sales  ~  87149.16 

(loods  on  hand  at  beginning 

Jan.   1 .  19    -) 
Purchases  for  the  period  61897.6s 

.Add  inward  freight  and  express  1013.92 

62911.57 
Deduct  returns  and  allowances  746. 12  62165.45 

90649.75 
Deduct  invcnt()i\   .n  date  26563.47 

Cost  of  goods  sold  64086.28 

Gross  profit  on  trading  23062.88 

174 


28484.30 


STATEMENTS 


175 


Profit  and  Loss  Section 
Selling  Expense  : 

Salesmen's  salaries  4472- 

Advertising  426.93 

Delivery  expense  918.65 

Liability  insurance  73-40 

Miscellaneous  98.60 


5989.58 


General  and  Administrative 

En 

:pense : 

Office  help 

Office  supplies 

Fuel,  light,  and  water 

1850.40 
463.82 
609.68 

Rent 

1200. 

Insurance  and  taxes 

987-75 

Depreciation  of  furniture 

and 

fixtures 

27-47 

51 

[39.12 

Bad  debts 

] 

[12. 50 

Sales  discount  taken 

978.44 

12219.64 

Net  profit 

ASSKTS 

10843.24 

Cash,  on  deposit 

2675.84 

Currency 

243.16 

2919. 

Notes  receivable,  considered 

good 

4312. 

Accounts  receivable. 

(( 

6418. 

12 

Stock  of  goods  at  date 

2 

6563- 

47 

Furniture  and  fixtures 

2746.89 

40212.59 

Less  depreciation 

_     27.47 

2719.42 

Insurance  and  taxes  unexpired 

289.30 

Total 

Liabilities 

43221.31 

Accounts  payable 

2136. 

12 

Salaries  unpaid 

1-  uel,  light,  and  water 

193-33 
36.50 

Miscellaneous  expense  items 

112.30 

34^- 

•3 

2478.25 

Capital 

Charles  Ford  invested 

36211. 

Deduct  drawings 

631 1. 1 8 

Add  net  profit 

29899.82 
10843.24 

Charles  Ford's  present  capital 


40743.06 


176 


ACCt 


WD    ACCOUNTING    PRACTICE 


Six-column  Balance  Sheet 

I  Ik-  following  form  of  statement  is  called  the  "  six-column  balance 
sheet."  This  is  a  convenient  way  of  tabulating  results  and  may  in  some 
cases  answer  every  purpose.  It  is  also  used  as  a  "  working  paper  "  by 
auditors  when  auditing  the  books  of  business  concerns. 


S  I  V  _  I    lit    I     \  I  \ 


f>  ^  1 


■■^'  '    *^!ni'r 


I>K 


(    K. 


I'norrrs 


Assets 


LlABrUTIKS 


E.C.  Sloant,  I'roprictor      200,  4737    <j2 


Cash 

Notes  Ri-Cfivabli- 

Notts  Payable 

MtTchandisi- 

Ortici-  Fuinitiire 

Kxpcnsc 

J.  W.  White 

David  Jacobs 

K.r  ^l-.nne,  Net  Profit 


356,45 
600  I 


3650 

75 

32s 

60 

800 

40 

27s 

20 

4^^ 

6208 

350 


1 1 20 


o      f>->  i~,fl 


78 


25    60 

750 :  40 1! 


iS5^    45 


E.  C.  Slnnni-.  Net  Investment  45S7<^- 

"     Profit  760.45 

Capital 


:rr, 

1 
45 

i 

5^S7 

^  ' 

300 

1 

50 

1 

-75 

20 

1 120 

78 

O70S 

i^i 

1470 

78 

*  Amount  is  entered  in  red  ink. 


;298|o7 


6768 


In  the  busmess  illustrated  above  the  trading  activities  —  stock  of  goods, 
purchases,  and  sales  —  have  been  kept  under  one  head.  If  the  Mirchan- 
dise  account  were  broken  up,  as  it  should  be,  this  form  of  statement  would 
not  show  the  cost  and  selling  price  of  goods  sold,  and  the  resultant  gross 
profit.  Moreover,  the  method  of  expression  is  much  too  technical  to  be 
readily  understood  by  one  not  familiar  with  accounting  procedure.  1  hese 
detects  seriously  impair  the  \aliie  of  this  form  for  practical  purposes. 

Exercises  in  Prkparing  Statements 

I.  Ironi  the  following  data  prepare  in  report  form  a  trading  and  profit 
and  loss  statement  and  a  statement  of  assets  and  liabilities.  Assume  that 
the  business  covers  a  period  of  six  months,  ending  on  the  current  date. 

C\is!i  on  deposit,  ^^51. 25;  personal  accounts  receivable,  ^^415. 60;  ac- 
counts payable,  )^3^)S  '  notes  payable,  ;^25o;  merchandise  inventory,  at  the 
beginning  of  the  period,  ^^4465  ;  purchases,  ^^^iijMi ;  sales,  J^45S6.I7  ;  freight 
and  express  inward,  ^^93. 42  ;  returneil  purchases,  ^^167. 85  ;  purchase  discount. 


EXERCISES    IN    PREPARING    STATEMENTS 


177 


$53.27;  sales  discount,  $23.44;  interest  on  notes  payable,  $33.60;  selling 
expense,  $218.45  ;  salaries,  $120 ;  general  expense,  $315.1 2  ;  office  furniture 
has  cost  $125  and  depreciated  6%;  losses  from  bad  debts,  $76.84.  The 
proprietor,  Henr\  L.  O'Day  invested  $4188.65  and  lias  drawn  out  $205.40. 
Ihe  stock  of  merchandise  on  haml  at  date  is  imcntoried  at  cost,  $4189.79, 
less  10  '  ('. 

2.  For  the  period  of  tliree  monrlis,  ended  Dec.  31,  19 — ,  the  trading 
and  profit  and  loss  accounts  in  the  ledger  of  Owen  Redheld  show  the  follow- 
ing balances  : 

Stock  of  Goods,  Sept.  30,  19 —  .     .       10345.20 

Sales        5765.41 

Returned  Sales     .... 


92.64 

2126.90 

112.85 


46.82 


10.20 


Purchases 

Inward  Freight  (on  purchases) 
Purchase  Discount    .... 

Sellmg  Expense 238.40 

Office  Expense 216.50 

Interest  &  Discount 

Insurance  &  Taxes 16.50 

Inventories  Dec.  31,  19 — :    stock  of  goods,  $7713.76. 

Prepare  a  trading,  and  profit  and  loss  account. 

If  Owen  Redfield's  capital  Sept.  30  was  $23245,  what  is  his  capital 
Dec.  31  ?  2.  What  is  the  cost  of  goods  sold  .''  3.  The  goods  were  sold  at 
what  per  cent  above  cost  ^  4.  What  rate  per  cent  of  profit  does  Redfield's 
investment  yield  ?  5.  How  many  times  during  the  year  would  Redfield 
turn  over  his  stock  ? 

3.  From  the  following  trial  balance  and  inventories,  prepare  a  six- 
column  balance  sheet  (see  form,  page  176).  The  business  which  this  trial 
balance  represents  covers  a  period  of  one  month. 

Trial  Balance,  May  31,   19 — 

Thomas  Cheshire,  Proprietor    .      .      .  8626. 

Merchandise 4158.50      1218.45 

Furniture  &  Fixtures 73--50 

Notes  Payable 618.           923. 

Interest  &  Discount 5.38 

Mdse.  Discount 4.93            2.97 

Profit  &:  Loss 22.40 

Cash 6454.24       986.66 

Expense '4'  13 

C.  W.  King 580. 

Albert  Perkins 200. 


178 


ACCOUM>     \M'     u  I  MINTING    PRACTICE 


Inventories:  stock  of  ^oods,  ^^3465;  furniture  and  fixtures,  ^^700; 
unconsunied  articles  churned  to  expense,  $25.30. 

Criticize  the  urranpement  of  the  accounts  in  the  above  trial  balance. 

4  The  following  trial  balance  is  taken  from  the  books  of  Jackson  & 
Verity,  partners,  Dec.  31,  19 — . 


Tri 


\i 


lUi 


Andrew  Jackson 

William  N'erity 

ktal  Ksrate 

i'uri.liascs 

Sales 

Stock  of  Merchandise  (July  i,  19 — ) 

Salaries 

I'raveling  Expenses  (Salesmen) 

Interest 

Stationery  &  PrintinR 

Rrnts  &    Taxes 

MiIm.  Discount 

Insurance  (one  year  from  July  i,  i<> — ) 

Inward  Kreipht 

(ieneral   Kxpenses 

Hank  Overdraft 

I  rade  Creditors 

Accounts  Receivable 

Cash  on  Hand 

Loan  Account 


40000 

i|20000 

'-'■>---. 

1 
1 

95000 

15000 

1 

6000 

1     1 

2500 

60c 

1200 

1 

3500 

' 

I  2  50 

1 1  ;o 

1500 

1 

600 

1 
1 

;ooo 

1  4000 

25000 

700 

,1 

7000 

1 

I  II        I     II 

Stock  of  merchandise  Dec.  31,  19 — ,  $^23000.  Depreciate  real  estate 
lO*^,  and  allow  3'";  on  book  accounts  for  possible  bad  debts.  Take  un- 
expired insurance  into  account.  Allow  interest  on  Capital  at  6%  per 
annum  and  divide  the  profit  or  loss  equall\-.  Prepare  the  business  and 
financial  statement. 

Set  up  and  close  the  followinp;  accounts:  Stock  of  Merchandise,  Real 
Estate,  Insurance. 

5.  The  followinti  trial  balance  covers  a  period  of  six  months  ended  June 
30,  19 — .  Use  the  report  form  ot  statement  and  show  ( i)  the  cost  ot  floods 
sold,  (2)  net  sales,  (3)  gross  profit,  (4)  net  profit,  and  (5)  present  capital. 


rRiAi.  Balan'ck,  June  30,   19 — 


E.  P.    Iracv,  Capital 
E.  P.   iracv.  Private 


61 


6760.76 


;o 


EXERCISES    IN   PREPARING    STATEMENTS  lyy 

Cash 314.80 

Notes  Receivable 150. 

Stock  of  Merchandise  (Jan.  i,  19 — )  6540.25 

Sales 5480.76 

Returned  Sales 112.15 

Purchases 42 11. 61 

Inward  Freight i35-i^ 

Salaries 98.50 

General  Expense 512.30 

Interest  on  Notes  Receivable  38.90 

Purchase  Discount 87.95 

John  W.  Way 3' -.83 

Nelson  Sherwood ^54-7- 

Victor  Degroot  &  Co 786.45 

Inventories:  merchandise,  ^6844.12  ;  unpaid  salaries,  ^11.50 ;  unpaid 
expense  items,  ^17.85. 

6.  The  following  data  are  taken  from  the  books  of  F.  R.  Hildreth  : 
Jan.  I,  19 — ,  stock  of  goods,  ^^24217. 89;  Dec.  31,  19 — (same  year),  stock 
of  goods,  )^237i2.4i  ;  purchases  during  the  year,  ^37512.20  ;  sales,  $58922.07, 
of  which  goods  costing  $1890  have  not  been  delivered;  returned  sales, 
$1275.32;  operating  expenses,  $6758.47;  insurance  and  taxes,  $314.50; 
outward  freight,  $615.50;  interest  on  notes  payable,  $213.14;  commission 
earned,  $1253.49;  reserve  for  bad  debts,  $850.  Provide  for  an  income  tax 
of  I  f  f  of  net  profit,  less  the  legal  exemption  of  $3000. 

Set  up  and  close  the  following  accounts  :  Inventory,  Sales,  Profit  &: 
Loss. 


COLUMNAR    CASH    BOOKS 

I  lirec  considerations  sIk)uIc1  ilctci  iiiiiie  the  form  of  a  cash  hook  : 
(l)  convenience  in  auditing  the  cash  account;  (2)  convenience  in  posting; 
(3)  a  means  of  sunini;in/.ing  ;jnd  testing  tin-  ;iccuracy  of  tin-  record  ;ind  check- 
ing irregul:irities  in  the  nK^ney  ;iccoiint. 

A  prudent  husiness  man  will  reiiuue  a  voucher  for  ever\  dolhir  of  cash 
paid,  and  a  memorandum  of  e;ich  receipt  given  for  cash  received.  Items 
in  the  cash  book  m;iy  then  be  compared  from  time  to  time  with  the  vouchers, 
as  a  check  upon  theft  and  other  irregularities.  Another  valuable  means  of 
checking  error  or  dishonesty  is  to  operate  the  cash  account  in  such  a  way 
that  the  bank's  record  of  deposits  and  withdrawals  will  correspond,  in  the 
aggregate  at  least,  with  the  cash  record.  All  cash  received  should  be 
deposited.  C\irrcncy  should  be  drawn  from  time  to  time  as  needed  for  pettv 
cash  by  check.  1  hese  important  purposes  can  be  accomplished  onl\'  hv 
running  columns  on  the  right  and  left  pages  that  record  respectively  actual 
disbursements  ;ind  receipts  of  c;ish.  Convenience  in  posting  is  always  a 
consideration  in  designing  any  book  of  original  entry. 

1  he  advantage  gained  by  the  use  of  columnar  books  is  to  some  extent 
offset  by  errors  resulting  from  entering  ;imounts  in  the  wrong  columns  ;  ;ind 
a  coIumn;ir  book  that  admits  of  a  trial  b;dance  test  as  a  check  upon  such 
errors  has  a  marked  :idvant;ige  over  one  that  can  be  tested  only  in  the  final 
trial  balance.  K;ich  division  of  the  book  of  original  entry  —  journal,  sales 
book,  purchase  book,  c;ish  received,  c;ish  paid,  etc.  —  presents  an  equality 
of  debits  and  credits,  which  affords  :i  means  of  testing  the  accuracy  of  each 
group  of  entries  if  the  books  are  properly  designed. 

Exercise  22 

T  he  f<)llj)wing  scries  of  narratives  is  intended  to  make  the  student  famil- 
iar with  dirtereiu  forms  of  c;ish  books  employed  in  connection  with  auxiliitrv 
ledgers  ;ind  controlling  accounts  in  the  gener;il  ledger.  Korm  i  meets  the 
re(juirements  hiid  down  in  the  preceding  p;iragraphs,  ;ilthough  some  ac- 
countants prefer  the  "  Net  Cash  "  ;ind  "  (Kner;d  Ledger  "  columns  trans- 
posed. No  one  form  c;in  be  ad;ipted  to  ;ill  conditions;  and  the  student 
should  become  faniili:ir  with  as  many  different  expedients  as  possible,  lb 
should,  ;iccordingly,  rule  the  prescribed  forms,  in;ike  the  entries,  summarize 
and  dose  the  cash  book  called  for  in  each  exercise. 

I  So 


COLUMNAR  CAST!  ROOKS  iSl 

It  is  not  thought  necessary  to  repeat  here  the  date,  foHo,  account  and 

particuhir  columns,   as  these   usuall\'  occupy  tlie  same  relatht-   positions. 

The   foHo   column    is    sometimes    placed    next    to   the  amount  column  for 

convenience  in  postmg,  and  when  cash  vouchers  are  numhered   and  filed 

numerically,  a  "  \'oucher  No."  column  is  included  on  the  ri^ht  page. 

Form  I 
Lejt  page: 

Net  Cash  Sales  Discount  Accounts  Receivable  General  Ledjicr 

Right  page: 

Net  Cash  Purchase  Discount  Accounts  Payable  General  Ledger 

In  a  business  involving  daily  cash  sales  to  transient  customers,  this  form 
might  include  a  '*  Sales  "column  after  Accounts  Receivable;  and  if  no  pettv 
cash  book  were  kept,  or  if  the  expense  items  paid  by  check  justified  it,  an 
"  Expense  "  coUnnn  might  be  included  on  the  right  side  after  Accounts  Payable. 

Compute  all  interest  at  6%,  unless  otherwise  directed. 

Narrative 

Oct.  I,  19 — .  Balance,  cash  on  hand,  ^765.45.  (This  item  should 
be  entered   short.     See  model,   page   182.) 

2.    Receive  of  ().  ().  Brackett  for  invoice  of  the  23d  ult.,  ^^365,  less  3%. 
4.   Pay  office  salaries  for  the  week,  ^125. 

6.  PayWillard  &:  Judd  for  our  (student's)  note  due  to-day  with  interest. 
Face  of  note,  ^^250;    interest  3  months  at  7%. 

7.  Discount  Harold  McVeigh's  60-day  note  in  our  favor,  dated  Aug.  1 5, 
for  ^460. 

Note.  —  Enter  the  discount  item  in  the  "Sales  Discount"  column  in  red,  or  mark,  it 
with  an  "  /  "  in  the  space  to  the  left,  and  debit  Interest  i^  Discount  for  the  amount  when 
you  close  the  cash  book.     (See  model,  page  182.) 

8.  Pay  Strauss  &  Co.  for  invoice  of  the  29th  ult.,  $218.50,  less  2%. 

9.  Draw  check  for  petty  cash,  ^^25.     (Charge  Petty  Cash  or  Currency.) 

10.  Receive  of  J.  L.  Wagner  his  check  for  )?200,  to  apply  on  invoice 
of  the  31st  ult.  for  $500,  on  terms  of  2%  10  days,  net  30  days. 

11.  Pay  Kent  &  Caldwell  for  invoice  of  25th  ult.,  due  to-day,  $950. 
14.   Harold  Mc\  eigh's  note  of  Aug.  15  due  to-day  is  protested  for  non- 
payment.     Protest  fees,  $2.50. 

14.  Discount  your  own  30-dav  note  at  the  Portland  National  Bank 
for  ,^500  and  receive  credit  for  the  proceeds.  Compute  the  discount  at 
7%.     (See  note  to  transaction  of  the  7th  inst.) 

15.  The  proprietor  (student)  draws  $50  for  personal  use. 

Foot  all  columns  and  ascertain  the  cash  balance.  State  the  summary 
in  the  form  of  a  journal  cntrv,  as  shown  on  next  page. 


l82 


ALCULMb    AND    An. 'L'NTINC    PRACTICE 


-I  <t  »t-<!-y' 


.//^ 


r  ^  .^irt  'ft^^-'  y  C 


'/e^it'^1^    /17s:  e  J 


A 

K^C 

.-*' 

Sc( 

..    / 

V 

Cash 

Sales  Discount 

Interest  &:  Discount 

A  ceo  u  n  t  s  R  ece  i  v  a  b  1  c 

General  Ledger  Accounts  (posted) 


Accounts  Payable 

General  Ledger  Accounts  (posted) 

Cash 

Purchase  Discount 


Form  2 
Ujt  paie: 

Mcnliandisc  Discount, 
A'     ■  v; 

..■<  n  .Liiulisc  Discount, 


Accounts  Receivable, 

•    AccounfK  y  ■'■'>'■ 


Sal 


es 


Net  Cash. 
Net    C.-ish. 


COLUMNAR    CASH    BOOKS 


183 


V>o\«. 


cu 


iJ 


/S 


V\v\. 


kVvvv....«V?      V^« 


\  Ky.\  \kk>-\\\\\  i 


-,-/ 


'  ^~-«^tc^^ 


57  j"^- 


-££1 


/ 


j^ 


^'^r 


</i^. 


/  /  :■  '  .) 


/ 


Narrative 

Nov.  2,  19 — .     Balance  on  deposit   in  Spokane  National  Bank,  y^i235. 
Cash  sales  for  the  day,  ^345. 

3.  Draw  check  for  petty  cash  fund,  $50. 

Note.  —  Make  no  entry  for  this  check  at  this  time.  When  the  cash  book  is  closed, 
the  results  of  the  petty  cash  book  will  be  broujuht  into  and  posted  from  the  main  cash  book. 
Compare  this  method  with  the  one  employed  in  form  i,  i^age  181. 

4.  Pay  E.  H.  May,  agent,  November  rent,  ^200. 
Cash  sales  3d  and  4th,  ^^284. 

5.  Prepay  our  2-months'  note,  dated  Oct.  3,  in  favor  of  L.  Al.  Slocuni 
for  ^325,  with  interest  at  6%  per  annum. 

Cash  sales  for  the  dav,  ^98.65. 

6.  Receive  of  the  Bush  Foundry  Co.  for  invoice  of  the  7th  ult.,  ^625, 
less  3%. 

7.  Pay  cash  for  office  furniture,  Horricks  Desk  Co.,  ^^165. 
Cash   sales  6th   and   7th,   ^^485. 

9.    Pay  1- .  D.  King  &:  Son  for  invoice  of  the  30th  ult.,  ^^327. 50. 
10.    Pay  A.  Adclhcig  &:  Brother  for  invoice  of  the  31st  ult.,  ,"^543,  less  4%. 
Cash  sales  9th  and    loth,  {^235. 70. 


1 84 


ACCOUNTS    .-VND    ACCUL.Ml.NO    l'K.\C  ilCE 


11.  Draw  a  30-day  draft  on  \\"ilct)x  &  Co.,  San  Irancisco,  for  ^460, 
and   discomu    tlir   satiu-   at    voiir   hank,    receiving  credit   for  the   proceeds. 

\(M  I  I  lii>  ll.lll^.ll  I  loll  iM.iilil  i.ill  li>i  I  >\.. »  Hi  i  11  >  .  I  irst,  ill  1)11  .  >  •; .  ^  Receivable  atui 

credit  U  ikox  i:  Co.  in  tlie  note  b<H>k  or  journal;  second,  debit  Cash  and  Interest  6c  Dis- 
count, and  credit  Notes  Receivable  in  the  cash  b<K)k.  Knter  the  Interest  &  Discount  item 
in  the  Sales  Discount  column  in  red.     See  note  to  transaction  of  the  7th,  form  1. 

12.  Draw  cluck  for  pay  roll,  J^ii^o.      ^  Debit  Pay  Roll.) 
Cash  sales  nth  and  12th,  ^^245. 15. 

14.  Pav  the  Ladies'  Ilomi'  Journal  advertising  account,  ^600. 

15.  Receive  of  Frank  Smith  for  invoice  of  the  5th  inst.,  ^416,  less  iVo- 
C'ash  sales   14th   and    15th,  ^165. 

Hrinji  into  the  main  cash  book  the  following;  summary  of  the  petty 
cash  hook:  Stationery,  J^3.75;  postage,  J^4.50;  telegrams,  $2.65;  car 
fares,  ^^2.40;    office  e.xpense,  5^6.30. 

Close  the  cash  hook  in  preparation  for  posting. 


Form  3 
Lfft  piJRf: 

.•\ccounts    Receivable 
Right  page: 

Accounts   Payable 


Mdse.  Discount 


Mdse.  Discount 


Expense 


General 
General 


Narrative 

Dec.  2,  19     .      Balance,   cash    on    iltposit,  ^^1250;   currency   on    hand. 
}^i8.50,  }^i26S.5o. 

3.    Pay  for  postage,  ^^5. 

6.    Receive  of  John  McAndrcw  in  full  of  account,  ^^450. 

6.  Pay  for  office  supplies,  B.  A.  CJray,  ^10.50. 

7.  Pay  George  Clraher  for  cleaning  office,  y>3.75. 

9.    Receive  of  Amos  Whitney  check  for  ^^225  to  applv  on  inNoice  of 
Nov.  30.     Allow  2';,  discount. 

10.  Pay  John   Dufty  &  Co.  J^450,  one  half  of  invoice  of  the   isr  inst. 
1  ake  3' ;    discount. 

11.  Receive  of  William  Lord  in  scttknieiu  of  his  note  due  to-d.iv  wirh 
interest.      Kace  of  note,  5^365.     Interest  3  months  at  6%. 

13.  Prepay  our  30-day  interest-hearing  note  of  Nov.  28,  for  ^^850. 

14.  Receive  of  .A.   \\  .    Manning  for  invoice  of  the  3d   inst.,  ^^212.50, 
•ess  4%. 

15.  Pav  office  salaries  to  date,  ^^125. 
15.    Pav   telegrams   and   petties,  ^^^65. 

15.    P.i\    the  Great  Northern   Railwav  freight  account  to  d.itc,  f>\X.jz,. 


COLUMNAR   CASH   BOOKS  185 

15.   Draw  a  sij^ht  draft  on  Arnold  \\  est  for  ^200,  and  receive  credit  tor 
the  same  at  your  bank,  less  collection  and  exchange,  yii. 
Ascertain  the  cash  balance  and  close  the  cash  book. 

Form  4 
Left  page: 

Mdse.  Discount  Accounts  Receivable  General 

Right  page: 

Mdsc.  Discount  Accounts  I*a\able  Expense  General 


Narrative 

June  I,  19 — .  L.  K.  Perkins  begins  business  with  a  cash  investment 
of  $5000. 

1.  Pay  Frederick  Frankfort  June  rent  of  premises,  $175. 

2.  Huy  of  Mullen  &  Buckley,  for  cash,  office  furniture,  ^165. 

2.  Pay  postage  and  petties,  ^^7.65. 

3.  Pay  Robert  Mill  &:  Co.  for  invoice  of  the  ist  inst.,  $(^7^- 

4.  Pay  Mills  &  Manning  for  invoice  of  the  ist  inst.,  $'SGo. 

6.  Pay  June  telephone  service.  Bell   Felephone  Co.,  J^io. 

7.  L.  K.  Perkins  makes  an  additional  investment,  J^iooo. 

8.  L.  K.  Perkins  discounts  his  3-months'  note  for  $1000,  at  the  Tacoma 
National  Bank,  at  7%,  and  pays  the  discount  in  cash. 

Note.  —  In  practice  the  bank  mij^ht  deduct  three  months'  interest.  There  is  no 
reason,  however,  why  interest  for  the  exact  number  of  days  should  not  be  deducted. 
Ihe  difference,  39?,  in  the  result  certainly  justifies  the  additional  labor  involved. 

9.  Buy  for  cash  of  the  Western  Sales  Stables,  i  team  dray  horses,  i$6oo. 
10.    Receive  of  Willis  Ogden  for  invoice  of  4th  inst.,  ^^165,  less  2%. 

12.  Pay  Herbert  L.  Smith  &  Brother  for  invoice  of  2d  inst.,  ^1000, 
less  3%. 

13.  Pay  telegrams,  car  fares,  and  petties,  ^9.60. 

14.  Discount  Henry  Newcomb's  30-day  note,  dated  June  S,  for  J^38o, 
at  the  Tacoma  National  Bank,  and  receive  credit  for  the  proceeds.  Pay 
the  discount  in  cash. 

15.  Receive  of  Gilbert  Hopkins  for  invoice  of  the  loth  inst.,  ^^^416. 90, 
less  3 ''[,. 

15.   Pay  wages  June   i   to   15,  ^^^5. 

15.    l*ay  the  Tacoma  Register  advertising  account,  ^§64. 

15.   Pay  legal  expenses,  l^urke  &  Kirlicks,  'f>\>^. 

15.   Pay  the  Cortland  Wagon  Co.  for  bill  of  the  9th  inst.,  ^156. 

Ascertain  the  cash  balance  and  close  the  cash  book. 


1 86  ACCOUNTS   AND   ACCOUNTING   PRACTICE 

Form  5 

111  a  \s  holtsalf  tradinj;  business  three  ledgers  are  operated  :  a  general 
ledger,  and  auxiliary  ledgers  for  the  accounts  of  customers  and  trade  credi- 
tors. (See  Auxiliary  Ledgers,  page  1H7.  i'urchase  and  sales  discounts  are 
involved.  All  cash  is  hanked,  and  a  petty  cash  hook  is  operated.  A  cash 
account  is  kept  in  the  general  ledger. 

{a)  Rule  a  main  cash  hook  suited  to  the  needs  of  this  business,  having 
regard  for  the  following  considerations: 

(1)  Convenience   in    auditing   the   cash    account. 

(2)  C\)n\enience  in  summan/ing  and  juoNing  cash. 

(3)  Convenience  in  posting  the  cash  book. 

{b)   Enter  the  following  transactions  in  the  book  as  called  for  in  (a). 

Narrative 

Dec.  I,  19      .      Balance,  cash  m  bank,  ^675.89;    petty  cash  tuiul,  S30. 

2.  Pay  Wilbur  Smith  for  invoice  of  the  23d  ult.,  ^^213. 50,  less  iV.c- 

3.  Discount  at  the  People's  Bank,  \.  I..  Burt's  60-day  interest-bearing 
note,  dated  Nov.  17,  19     ,  for  $346.50,  and  receive  credit  for  the  proceeds. 

4.  Pay  Haynes  &  Co.,  agents,  Dec.  rent  of  business  premises,  ^^150. 

4.  Receive  of  Curtis  &  Co.,  their  check  for  ^^300,  to  apply  on  invoice  of 
26th  ult.,  $456.84,  on  terms  of  2    10  n  30. 

5.  Draw  a  30-day  draft  on  McGraw  &:  Smith  for  $225,  and  discount 
it  at  the  Pet)ple's  Bank,  receiving  credit  for  the  proceeds. 

5.  Prepay  our  2-months'  note  of  $200,  favor  Andrews  Brothers  Date 
of  note   Nov.    23,    19 — . 

6.  Draw  check  for  petty  cash  vouchers,  $27.40,  and  distribute  the 
amount  as  follows:  Office  expense,  $13.50;  stable  expense,  $12;  selling 
expense,  $1.90. 

(f)   Summarize  and  close  the  cash   book. 


AUXILIARY   LEDGERS 

For  the  same  reason  that  we  have  grouped  related  facts  to  construct 
accounts,  it  becomes  necessary  to  group  rehired  accounts  to  form  summary 
or  conrrolhng  accounts.  Many  trading  concerns  ha\e  from  one  thousand 
to  ten  rht)usand  or  more  open  accounts  with  customers.  Obviously  so 
many  could  not  be  conveniently  kept  in  one  ledger  with  the  general  accounts. 
Moreover,  a  large  accounting  system  calls  for  a  large  force  of  bookkeepers, 
and  consequent  division  of  labor,  which  necessitates  ledger  subdivisions. 

Customers'  Ledger 

Customers'  ledgers  vary  in  form  with  the  nature  and  extent  of  the 
business  involved,  as  well  as  with  the  permanent  or  transient  character 
ot  its  customers'  accounts.  Where  the  personnel  of  such  accounts  is  con- 
stantly changing,  as  a  result  of  securing  new  customers  and  losing  old  ones, 
the  ordinary  form  of  bound  ledger  is  not  as  satisfactory  as  are  some  of  the 
other  forms.  The  loose-leaf  customers'  ledger,  which  consists  of  detached 
leaves  locked  together  by  means  of  a  mechanical  device,  is  in  very  general 
use.  This  device  enables  the  bookkeeper  to  extract  leaves  containing 
"  dead  "  accounts,  and  to  insert  new  ones  as  occasion  requires. 

Customers'  accounts  are  often  kept  on  cards  of  a  convenient  size  and 
ruling.  These  cards  are  filed  in  alphabetic  or  numeric  order,  as  their  num- 
ber and  extent  determine.  But  winle  accounts  in  large  numbers  are  con- 
veniently operated  in  this  way,  there  is  an  objection  to  the  card  system, 
viz.,  unless  these  detached  fragments  are  carefully  filed  and  handled  by  a 
competent  person,  they  become  misplaced  and  sometimes  lost. 

Controlling  Accounts 

Manifestly  if  any  number  of  accounts  are  taken  out  of  the  general 
ledger,  the  equilibrium  of  that  ledger  is  destroyed,  and  it  can  be  restored 
only  by  restoring  the  items  segregated,  or  their  equivalent.  This  is  accom- 
plished by  posting  to  the  general  ledger  the  totals  of  items  posted  to  the 
auxiliary  ledger. 

\  he  general  ledger  account,  which  summarizes  items  posted  to  the 
customers'  ledger,  is  called  variously,  "  Accounts  Receivable,"  "  Sales 
Ledger  Account,"  and  "Customers'  Controlling  Account."  Anyone  of 
these  titles  indicates  the  function  of  the  account,  but  the  first  one  is  in  most 
general  use,  and,  for  the  sake  of  uniformity,  this  title  will  be  employed  in 
this  work. 

187 


l88  ACCOUNTS   AND   ACCOUNTING    PRACTICE 

Analvzing  a  custonu'i's  account,  wc  fiiul  that  it  is  charged  with: 
(l)  credit  sales;  (2)  casli  reinihurstnunts  for  returns  and  allowances; 
(3)  cash  advances  to  take  up  matured  paper  (previously  discounted),  which 
the  customer  finds  himself  unahle  to  meet  and  which  sometimes  includes 
protest  fees;  (4)  a  customer's  notes  or  acceptances  held  hy  you  and  dis- 
honored either  at  maturity,  or  (by  implication)  on  suspension  of  payment 
by,  or  insolvency  of,  the  customer.  A  customer  receives  credit  for :  (l)  cash 
received  from  him  on  account  plus  discount  allowed,  if  any;  (2)  his  prom- 
issory notes  and  acceptances  in  our  favor;  (3)  returns,  allowances,  and 
rebates;    and  (4)  items  charjjed  to  Bad  Debts  account  or  to  Profit  \^  Loss. 

It  follows,  then,  that  the  customers'  controlling  account  in  the  general 
ledfier  would  be  made  up  of  items  from  the  following  sources  : 

Accounts  Receivable 


(i)    Total  of  sales  book.  (l)    Total    of  "Accts.    Rec."    column    left 

(2)  and  (3)    Credit  side  of  cash  book,    i  page  of  cash  book. 

(4)    Debit  side  of  journal.  j|   (2)    Customers'  bill  book,  or  credit  side  of 

jiiurnal. 

(3)  Returned  sales  book,  or  credit  side  of 
journal. 

(4)  Credit  side  of  journal. 

\\  hile  the  foregoing  analysis  covers  practically  all  cases,  the  chief 
sources  of  this  account  are  the  sales  book,  the  left  page  of  the  cash  book, 
and,  if  settlements  are  made  by  notes  or  acceptances,  the  credit  side  of  the 
journal.  I  here  is  always  a  special  column  on  the  left  page  of  the  cash  book 
for  items  belonging  to  Accounts  ReceivabUy  and  such  a  column  may  be  ruled 
on  the  right  page  of  the  cash  book,  on  the  right  or  both  sides  of  the  journal, 
or  wherever  the  items  to  be  grouped  are  sufficiently  numerous  to  justify  it. 

Creditors'  Ledger 

l*or  the  sake  of  clearness,  the  customers'  ledger  and  the  content  and 
source  of  its  controlling  account  have  been  described  as  illustrating  the 
auxiliary  ledger  and  its  relation  to  the  general  ledger.  For  the  same  pur- 
pose, and  with  ecjual  facility,  trade  creditors'  accounts  may  be  segregated 
and  kept  in  loose-leaf  volumes  or  on  cards.  1  he  use  of  a  creditors'  ledger 
would  necessitate  a  creditors'  controlling  account  in  the  general  ledger. 
I  his  account  is  variously  called  *'  Accounts  Payable,"  "  Purchase  Ledger 
Account,"  and  "  Creditors'  Controlling  Account."  These  all  are  descrip- 
tive titles,  but  rile  naim  111  most  general  use  is  Accounts  Payable.  The 
student,  however,  should  become  familiar  with  the  different  names  employed 
in  accountkeeping  to  designate  the  same  thing,  as  he  will  encounter  dif- 
ferent names  in  examinations  set  bv  different  examiners,  and  in  business  life. 


CONTROLLING   ACCOUNT 


189 


Since  the  Accounts  Payable  account  should  be  charged  and  credited 
whenever  a  trade  creditor  is  charged  and  credited,  the  sources  of  the 
various  items  comprising  this  account  should  be  understood.  They  are  as 
follows  : 

Accounts  Payable 


(l)  Total  of  "Accts.  Pay."  (.olumn,  right 
page  of  cash  book,  which  includes 
cash  paid  and  discount  allowed. 

{z)  Creditors'  note  book,  or  left  side  of 
journal. 

(3)  Returned  purchase  book,  or  left  side  of 
journal. 


(1)  Total  ol  the  purchase  huok.. 

(2)  Left  page  of  cash   book  (cash  receipts 

from   creditors  for  returns  or  allow- 
ances). 

(3)  Credit   side  of  journal    (for   items   not 

included  in  (i)  and  (2)  which  might 
be  journalized). 


In  a  business  where  settlements  with  creditors  are  frequently  made  by 
issuing  to  them  your  notes  or  accepting  their  drafts,  a  note  book  should 
be  kept.  In  the  absence  of  such  a  book  as  a  principal  book,  a  special 
".Accounts  Payable  Dr."  column  could  be  run  conveniently  in  the  journal. 
Such  a  column  is  sometimes  justified  on  the  left  page  of  the  cash  book, 
fhe  frequency  of  items  belonging  to  one  account  always  determines  the 
practicability  of  a  special  column. 

An  au.xiliary  ledger  may  accordingly  be  operated  for  any  related  group 
of  accounts,  and  when  so  operated,  calls  for  a  corresponding  controlling 
account  in  the  general  ledger.  Shipment  and  consignment  accounts, 
detailed  expense,  and  manufacturing  cost  accounts,  all  lend  themselves 
readily  to  this  treatment. 

Advantages  of  the  Controlling  Account 

1  he  controlling  account  (i)  greatly  reduces  and  simplifies  the  trial 
balance,  by  eliminating  the  details  of  accounts  which  lead  to  the  same  or 
related  conclusions  ;  (2)  it  serves  as  a  check  upon  errors  in  auxiliary  ledgers, 
the  presumption  being  that  the  controlling  account,  as  a  part  of  the  trial 
balance,  is  correct,  and  auxiliary  ledgers  should  accordingly  be  brought 
into  agreement ;  and  (3)  it  brings  all  the  factors  of  the  trial  balance  within 
the  covers  of  one  volume,  and  enables  the  responsible  head  of  the  account- 
ing department  to  check  the  work  of  subordinates,  and  to  have  exclusive 
knowledge  of  matters  of  a  confidential  nature. 

In  the  next  exercise  four  books  of  original  entry  are  to  be  used  ;  namely, 
sales  book,  purchase  book,  cash  b(wk,  and  a  journal.  Two  ledgers  w'lll  be 
operated  —  general  and  customers'. 

A  customers'  controlling  account  —  Accounts  Receivable  —  will  be 
operated  in  the  general  ledger.  Whenever  a  trial  balance  is  taken,  the  aux- 
iliary ledger  must  be  brought  into  agreement  with  its  controlling  account. 
The  names  of  customers  will  not  appear  in  the  trial  balance,  but  these 


190  ACCOUNTS   AND   ACCOUNTING   PR.\CTICB 

items  NNill  l)c  represented  in  the  trial  balance  by  the  .-Iccounts  Receivable 
account.  Stud\  carefully  tin-  source  of  items  comprising  this  account 
Csec  pa  lies   1S7   nnd    iSS). 

Review  Questions 

1.  What  is  the  function  of  an  .luxihary  ledger:  2.  Show  how  the 
use  of  an  au.\ihar\  ledger  aftects  {a)  the  trial  balance,  {b)  rulings  in  books 
of  original  entry.  3.  What  classes  of  accounts  are  conveniently  kept  in 
auxiliary  ledgers  .'  4.  W  hat  is  a  controlling  account  .'  5.  Give  in  detail 
the  sources  of  items  comprising  {a)  the  accounts  receivable  account,  ib)  thi- 
accounts  payable  account.  6.  Illustrate,  by  means  of  a  statement  and 
using  data  of  your  own  invention,  how  you  would  show  an  agreement  be- 
tween the  accounts  in  an  auxiliary  ledger  and  its  controlling  account. 

7.  Under  what  circumstances  would  you  use  special  columns  in  books 
of  original  entry  .'  S.  {a)  Rule  a  special  column  journal  for  a  business 
whose  purchases  and  sales  are  largely  settled  by  notes,  assuming  that  cus- 
tomers' and  trade  creditors'  ledgers  are  kept,  {b)  Illustrate  the  use  of  this 
journal  by  means  of  six  different  entries.     Close  the  journal. 

9.  Define  a  promissory  note.  A  New  York  draft.  A  check.  10.  De- 
fine and  illustrate  four  kinds  of  indorsements.  11.  What  indorsement 
would  you  use  in  {a)  transferring  a  check  to  your  bank  for  deposit,  {b)  send- 
ing a  paper,  payable  to  your  order,  through  the  mail  or  by  messenger  .' 
Why  :  \i.  What  is  the  effect  of  a  blank  indorsement  .'  13.  Describe  a 
convenient  and  economical  method  of  making  remittances  so  that  the  remit- 
ter may  have  a  receipt  for  the  money  paid.  14.  lO  what  extent  mav  local 
checks  be  used  for  making  remittances  :  15.  To  what  form  of  exchange  is 
a  creditor  entitled  in  satisfaction  of  a  debt  ? 


BUSINESS   PRACTICE   AND    PROCEDURE 

Practically  all  data  in  a  business  office  have  their  origin  in  some  form 
of  business  document.  W  ritmg,  mterpreting,  and  properly  disposing  of 
these  documents  largely  constitute  the  ofHce  assistants'  work. 

The  following  e.xercise  is  intended  to  give  the  student  practice  in  han- 
dling and  interpreting  the  more  common  forms  that  arise  in  office  routine. 
The  benefit  derived  from  this  study  will  he  in  proportion  to  the  thoroughness 
with  which  the  student  does  the  work  prescribed.  And  in  order  that  he 
may  approach  the  exercise  with  some  understanding  of  its  main  features, 
the  following  preliminary  discussion   should  be  carefull}'  studied. 

Consignment  Goods 

The  business  illustrated  differs  in  one  important  particular  from  those 
we  have  previously  studied.  The  stock  in  trade  of  Samuel  Holbrook  &  Co. 
is  carpets,  rugs,  linoleums,  and  mattings.  Aside  from  carrying  a  stock  of 
these  commodities,  they  are  selling  agents  of  the  Burt  Carpet  Co.,  manu- 
facturers of  a.xminster,  chenille,  and  tapestry  rugs  and  carpets.  Orders 
received  for  any  of  these  lines  are  passed  to  and  siiipped  from  the  factory. 
The  shipment  is  reported  back  to  us  on  a  form,  called  a  "  consignment 
invoice,"  in  duplicate.  We  enter  prices  on  this  form,  make  extensions  and 
prepare  the  customer's  invoice.  At  the  same  time  we  charge  the  customer 
and  credit  Consignments.,  for  which  a  special  column  is  provided  in  the  sales 
book.  The  consignor  gives  us  the  same  terms  of  settlement  that  we  offer 
the  customer.  Our  compensation  for  selling  the  goods  of  the  Burt  Carpet 
Co.  is  a  commission  of  6*70  which  is  computed  on  the  invoice  amount,  less 
the  discount  offered.  Whenever  we  make  a  remittance  to  cover  the  pro- 
ceeds of  a  consignment  sale,  we  debit  the  consignment  for  the  invoice 
amount  and  credit  Merchandise  Discount,  Commission,  and  Cash.  Detailed 
instructions  will  be  given  as  transactions  arise  until  the  student  becomes 
tamiliar  with  the  procedure. 

Books  to  be  Used 

The  journal,  main  cash  book,  petty  cash  sheet,  sales  book,  and  pur- 
chase journal  will  be  used  as  principal  books,  and  the  note  book,  bank  pass 
book,  and  check  book,  as  supplementary  records.  The  accounts  of  cus- 
tomers will  be  kept  in  a  separate  customers'  ledger;  all  other  accounts,  in 
the  main  ledger. 

\  he  journal  differs  in  no  respect  from  those  we  have  hitherto  used.  In 
it  are  recorded  all  transactions  not  otherwise  disposed  of. 

IQI 


1C)2  ACCOLM^    AND    ALLULNTrSG    PRACTICE 

The  purchase  journal  will  contain  all  merchandise  purchases,  as  well 
as  all  purchases  of  supplies  for  which  an  invoice  is  rendered,  such  as  ship- 
ping cases,  horse  feed,  traffic  supplies,  office  furniture,  etc.  1  wo  money 
columns  are  pro\icled  "  Mdsr.  Purchases,"  and  *'  Sundries."  Items 
other  than  merchandise  are  entered  m  the  "  Sundries  "  column,  and  posted 
to  the  various  accounts  charged. 

The  sales  book  differs  in  no  rcspcci  trom  those  with  which  you  an- 
familiar,  except  that  an  additional  column  for  consignment  sales  is  added. 
K.xtend  all  sales  of  consignment  goods  to  this  column,  and  post  thr  '-  ';/ 
to  the  credit  of  Coy:signments  account  in  the  general  ledger. 

An  light-column  cash  hook  will  he  emplo\ed.  I  he  net  cash  columns 
shouKl  record  actual  amounts  of  cash  received  or  paid.  I  he  "  Accounts 
Receivable  "  column  will  assemble  amounts  for  which  customers  are  credited 
—  the  net  cash  plus  the  discount,  if  any  -  on  account  of  their  cash  pay- 
ments. All  amounts  to  be  posted  to  the  general  ledger  are  entered  in  the 
general  ledger  column.  This  includes  items  for  which  trade  creditors  are 
charged  on  account  of  cash  remittances.  In  recording  remittances  of  the 
proceeds  ot  account  sales,  tour  columns  are  involved;  namely,  "Net 
Cash,"  "  Purchase  Discount,"  "  Commission  "  and  "  Cieiieral  Ledger." 

The  Petty  Cash  Record 

It  is  necessary  in  a  business  of  any  size  to  remove  from  the  main 
cash  book  the  record  of  numerous  currency  pavments  of  small  amounts. 
I  hcsc  payments  are  made  on  behalf  of,  and  must  be  charged  to,  various 
departments  of  the  business.  The  method  adopted  in  this  exercise  is  (i)  to 
deposit  in  the  bank  all  cash  items  received  ;  (2)  to  draw  by  check  an  amount 
sufficient  to  cover  petty  disbursements  for  one  month;  (3)  to  charge  the 
petty  cashier  with  this  amount  in  the  petty  cash  record,  but  to  make  no 
entry  at  the  time  in  the  main  cash  book;  (4)  to  require  the  petty  cashier 
to  submit  vouchers  at  the  end  of  the  month,  initialed  by  one  of  the  partners, 
for  all  disbursements.  He  is  then  given  another  check  in  exchange  for  the 
vouchers,  which  restores  the  fund,  called  "  imprest  fund,"  to  its  original 
capital.  When  the  petty  cash  record  is  closed  for  the  month,  the  results 
are  brought  into  the  main  cash  book,  and  are  posted  from  that  book  to  the 
general  ledger. 

1  he  advantages  of  this  plan  should  be  apparent.  All  cash  is  banked, 
so  that  the  bank  deposits  will  correspond  in  total  with  cash  received,  while 
the  main  cash  book  and  the  b;mk  pass  book  must  coincide  in  the  matter 
of  payments,  when  all  checks  issued  are  recorded  in  both  books.  Kmbezzle- 
ment  usually  begins  with  misappropriations  of  postage,  car  fares,  and  the 
like,  and  an  office  that  docs  not  have  a  check  upon  petty  disbursements  is 
needlessly  tempting  its  employees  and  opening  the  wav  to  loss  from  pettv 


BUSINESS   PRACTICE    AND   PROCEDtJRE  1 93 

theft.  Moreover,  from  an  accounting  standpoint,  this  method  clears  the 
main  cash  book  of  numerous  small  items,  thereby  reducing  its  volume,  and 
summarizes  these  items  so  that  the  totals  only  may  be  carried  into  the 
general  ledger. 

The  Note  Book 

For  the  reason  that  notes  and  acceptances  payable  must  be  met 
promptl\-  at  maturity  to  avoid  the  embarrassment  and  expense  of  protest, 
and  that  receivables  of  this  character  must  also  be  attended  to  promptly 
at  maturity  to  prevent  loss,  the  record  of  such  promises  given  and  received 
should  be  complete  in  every  detail.  The  note  book  is  designed  to  record 
the  particulars  of  negotiable  paper  issued  or  received  by  us.  The  matur- 
itv  of  paper  is  shown  in  such  a  way  as  to  be  a  daily  reminder  of  items  that 
need  attention.  The  note  book  is  used  in  this  e.xercise  merely  as  an  aux- 
iliary, or  memorandum,  record,  and  all  transactions  involving  the  issue 
or  receipt  of  time  paper  will  be  journalized  as  usual.  Ihe  only  explanation 
necessary  in  the  journal,  however,  is  reference  to  the  page  of  the  note 
book  on  which  the  details  are  recorded. 

The  Bank  Account 

Xo  business  of  importance  is  conducted  nowadays  without  the 
use  of  banking  conveniences.  As  a  means  of  collecting  checks,  drafts, 
and  notes  that  a  business  will  receive  from  its  patrons,  as  a  means  of  re- 
mitting money  by  the  use  of  checks  and  drafts,  and  as  a  safe  depository, 
its  services  are  indispensable. 

Banks  will  not  do  business  with  strangers.  They  must  know  who  you 
are,  and  they  must  know  the  signature  by  which  the  payment  of  your 
money  is  authorized.  In  a  partnership  business  either  partner  may  sign 
or  indorse  the  firm's  drafts,  checks,  or  notes.  Another  person  may  obtain 
authority  to  sign  and  indorse  such  paper  by  means  of  what  is  called  a 
"  power  of  attorney."  Accordingly,  if  you  wish  to  open  a  bank  account, 
you  should  be,  or  become,  known  to  the  bank's  officials,  and  should  leave 
with  It  a  facsimile  of  the  signature  that  will  go  on  your  checks.  It  you  are 
acting  as  the  agent  of  another,  those  whom  you  represent  should  give  you 
a  power  of  attorney,  which  will  set  forth  in  detail  the  things  you  are  author- 
ized to  do.  Banks  ordinarily  provide  blank  forms  to  be  used  for  this 
purpose. 

Three  records  are  made  in  connection  with  bank  deposits  and  with- 
drawals;  namely,  the  deposit  ticket,  the  bank  pass  book,  and  the  check  book. 

Deposit  Ticket 

The  deposit  ticket  shows  the  name  of  the  depositor,  the  date,  amount, 
and  character  of  your  deposit.  When  you  are  ready  to  make  a  deposit, 
indorse  all  checks  in  full  (see  Indorsements,  page  196),  classify  and  properly 


194  ACCOUNTS   AND   ACCOUNTING    PRACTICE 

arranpe  specie,  currency,  checks,  and  drafts  for  the  teller's  convenience  in 
counting  and  checking.      List  the  diHVrent  items  separatel\  on  your  deposit 
ticket,  and  strike  the  total.      Present  these  to  the  receiving;  teller,  together 
with  vour  pass  hook,  and  recei\'e  credit. 
Pass  Book 

The  pass  book  is  the  bank's  receipt  for  your  deposits  and  record  of 
vour  drawings,  and  is  usually  kept  in  your  possession.  In  this  book  you 
receive  credit  for  deposits  and  collections.  As  often  as  once  a  month  the 
pass  book  should  be  left  at  the  bank  to  be  "  written  up."  At  this  time  the 
bank  will  charge  you  with  all  checks  drawn  against  your  deposit,  which  are 
at  the  time  returned  to  the  bank,  with  all  notes  and  acceptances  which  you 
have  authorized  them  to  pay,  and  with  interest  and  collection  '  charges,  if 
there  are  any.  1  lu-  canceled  checks,  notes,  and  drafts  so  charged  against 
your  account,  together  with  a  list  of  the  amounts  involved,  will  be  returned 
to  you  with  your  pass  book,  which  will  now  show  the  amount  remaining 
to  vour  credit,  or  your  balance. 

Proving  Cash 

As  soon  as  the  pass  book  is  received,  ha\ing  been  balanced  to  date, 
you  should  "  reconcile  "  the  various  records  that  have  to  do  with  the 
receipt  and  payment  of  money.  The  following  formula  is  suggested  as  a 
means  of  reconciling  the  various  records  : 

AIf?norandu?n 

Bank  balance  at  beginning  (give  date),  ^1200. 

Receipts  deposited,  2460.90 

5^3660.90 

\  oucIkts  returned,  per  pass  book,       ,^1276.80 

Checks  outstanding,  474. 

Total  payments,  1750.80 

Hank  balance  (give  date),  per  check  book,  $1910.10 

Imprest  fund,  50. 

Cash  balance,  per  cash  book,  1960.10 

F'irst,  arrange  your  checks  in  numerical  order.  (All  checks  should  be 
numbered  when  drawn.)  Compare  these  canceled  checks  with  the  check 
book  stub,  ticking  each  item  as  you  pass  it.      In  the  same  way  verify  items 

'  I  Iktc  arc  at  present  three  different  nicrhods  in  operation  in  different  hanks  for 
handUnji  collection  items.  In  some  cases  tlic  customer  paj's  the  collection  charges  in 
currency  at  the  time  the  paper  on  which  such  charges  accrue  is  offered  for  deposit  or 
collection.  Another  method  is  to  charge  the  customer  exchange  when  the  deposit  is 
made.  A  third  method  is  to  render  a  statement  of  collection  charges  monthl\-.  or  as 
often  as  the  pass  hook  is  halanced. 


BUSINESS   PRACTICE   AND   PROCEDURE 


195 


not  vouched  for  bv  a  check.  When  you  are  through,  the  unticked  items,  if 
there  are  any,  will  show  cliecks  outstanding  ;  that  is,  checks  not  yet  returned 
to  the  bank  and  nt)t  charged  against  you  in  the  pass  book.  Add  the  amount 
of  checks  outstanding  to  the  vouchers  returned,  and  the  result  should  agree 
with  the  balance  shown  by  the  check  book,  assuming,  of  course,  that  all  items 
have  been  included,  such  as  interest  and  collection  charges  for  which  there 
may  be  no  voucher.  Having  regard  for  the  office  cash  fund  (imprest  fund), 
the  bank  balance  should  agree  with  the  cash  balance  as  shown  by  the  main 
cash  book. 

Check  Book 

The  check  book  counterfoil,  or  stub,  should  be  a  complete  record  of  your 
transactions  with  the  bank  kept  by  yourself,  and  should  show  at  all  times 
the  amount  to  vour  credit  in  the  bank.  This  record  should  contain,  there- 
fore, not  only  all  deposits  and  the  amount  of  all  checks,  but  the  proceeds 
of  all  notes  discounted  at,  or  collected  by,  the  bank,  as  well  as  all  notes 
and  drafts  which  the  bank  has  paid  on  your  account,  and  collection  charges 
and  interest  items,  if  there  are  any.  In  making  this  record  you  have  only 
to  keep  in  mind  that  charges  against  the  bank  are  added  to  your  bank 
balance,  while  all  payments  by  the  bank  for  your  account  are  subtracted 
therefrom.     See  illustration  following: 


O^aOmt. 


Z 19=^ 


HoMmJ- 


2-0  0  c 

Coo 


So- 


l-Coo 


CKtf 


£^//>^  7,  19.=- 


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I  ^a.JAn-L. 


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order  ol 


InduiupoUs.  l~<    J^^f^^^^y^  2.     M  — 

The  Second  National  Bank 


i   Q:?^.-i^-^^ /:/f/^.yt^^^  _    ^y-.,^^mi. 


'^^f"^ 


:Dolkn 


C^^yy^^^y.A,y.-  f    ^~r^)^X^- 


s<^ 


The  check  book  is  opened  by  entering  the  bank  balance  on  the  stub 
at  the  top  of  page  i.  Do  not  neglect  to  carry  forward  results  trom  the 
bottom  of  the  page  to  the  top  of  the  next  page. 


196  ACCOUNTS   AND   ACCOUNTING   PRACTICE 

Writing  Negotiable  Paper 

1  lit-  utmost  cm-  shouKl  l)t  rxerciscil  in  wntuiji  checks,  dr:ifts  and  notes. 
It  is  not  so  nuicli  a  (jiRstion  of  yoiii  ability  to  write  one  ot  tiiese  papers 
correctly  by  jjiN'inK  it  your  undi\ulecl  attention;  \()U  slioulii  repeat  the 
operation  until  accuracy  and  correct  form  become  habitual.  !)'>  imt  leave 
a  blank  space  either  before  or  after  the  amount.  .Adopt  a  plain  signature 
one  that  can  be  easily  read.  The  notion  that  illej;ible  signatures  are  less 
easily  imitated  by  forf^ers  is  erroneous,  lill  in  the  stub  Hist,  and  number 
all  checks  consecutively.  Do  nor  destroy  or  mislay  a  blank  that  for  any 
reason  is  not  used.  .Mark  across  the  face  of  the  blank  Canceled,  or  /'ou/, 
and  attach  it  to  the  corresponding  stub.  Observe  the  same  instructions  in 
writing  notes  and  drafts. 

Discounting  Time  Paper 

.  iMtlier  because  the  holder  needs  the  monev  which  good  paper  will 
yield  at  the  bank,  or  because  the  one  responsible  for  its  payment  is  less 
likely  to  ask  for  a  renewal  if  the  paper  has  been  discounted,  a  great  deal  of 
it  reaches  the  bank  before  it  matures.  Ihe  business  man  applies  two  tests 
to  everything  that  is  offered  him  in  the  course  of  trade.  Me  wants  to  know- 
how  he  can  use  a  thing,  or  where  he  can  dispose  of  it,  and  what  it  will 
bring.  I  here  is  practically  but  one  market  for  negotiable  paper,  and 
that  is  the  bank.  So  if  the  business  man  accepts  such  paper,  his  only 
criterion  of  its  present  value  is  what  the  bank  will  give  for  it.  Wholly 
apart  from  the  financial  standing  of  the  parties  to  a  note  receivable,  the 
bank  will  not  accept  it  after  maturity.  It  does  not  care  to  handle  renewals, 
and  is  exceedingly  cautious  in  the  matter  of  discounting  accommodation 
notes;  that  is,  notes  for  which  value  has  not  been  given  in  due  course  of 
trade.  I  he  \alue  of  such  paper  as  the  bank  will  accept  is  computed  by 
the  method  known  as  "  bank  discount,"  which  was  very  fully  treated  on 
pages  1 15  and  i  16. 

Indorsements 

Negotiable  paper  —  notes,  drafts,  and  checks  —  calls  for  the  payment 
of  a  certain  sum  of  money  to  a  designated  payee,  or  to  bearer.  \  he  party 
designated  as  pa\ee  may  either  receive  pa\inent  himself  or  order  the  money 
paid  to  some  one  else.  The  payee  directs  payment  to  another  by  a  writing, 
usually  on  the  back  of  the  paper,  called  an  "  indorsement."  Besides  trans- 
ferring and  passing  title  to  the  instrument,  an  indorsement  makes  an  indorser 
responsible,  with  certain  conditions,  for  the  amount  named  in  the  paper, 
unless  words  are  employed  in  the  indorsement  to  exempt  the  indorser  from 
such  liabilitv. 

It  the  paper  is  made  payable,  cither  originally  or  by  indoisement,  to 
bearer,  that  is,  to  the  holder,  it  may  be  passed  thereafter  from  one  part\ 


BUSINESS   PRACTICE    AND   PROCEDURE  1 97 

to  another  without  indorseincnt.  Init,  since  nej^otuihle  paper  is  received, 
at  least  to  some  extent,  on  the  responsibihty  of  the  one  offering  it,  and 
since  such  responsibihty  may  be  fixed  only  by  indorsement,  a  prudent 
person  will  ordinarily  require  indorsement  in  any  event. 

With  reference,  then,  to  the  intent  and  responsibility  of  the  indorser, 
indorsements    are    classified     as    "  blank,"    "  special,"     "  ciuahfied,"    and 
restrictive." 

All  indorsements,  of  course,  ie(|uire  the  signature  of  the  indorser. 
Rubber  stamps  are  very  generally  used  by  business  firms  and  banks  with 
which  to  indorse,  and  they  seem  to  answer  every  requirement.  When  the 
indorsement  consists  of  the  name  of  the  indorser  only,  it  is  said  to  be  "  in 
blank."  Such  indorsement  designates  no  indorsee  and  makes  the  paper 
payable  to  bearer. 

When  the  indorser  specifies  the  party  to  whom  the  money  shall  be  paid, 
as,  Pay  to  the  order  of  John  Doe,  Richard  Roe,  the  indorsement  is  said  to  be 
in  full,"  or  "  special."  If  the  indorser  wishes  to  transfer  the  instrument 
without  assuming  liability  as  indorser,  he  may  employ  the  words  zvithout 
recourse, ox  theire(]uivalent,  as,  Pay  to  the  order  of  John  Doe,  zvithout  recourse, 
Richard  Roe.     Such   an  indorsement  is  called  "  qualified." 

An  indorsement  with  delivery  transfers  the  ownership  of  the  paper  to 
the  one  to  whom  it  is  indorsed  and  delivered,  unless  words  are  employed 
to  show  that  the  indorser  does  not  intend  to  transfer  such  ownership. 
Pay  to  the  order  of  the  Corn  Exchange  Bank  for  collection,  Richard  Roe, 
makes  the  bank  the  agent  of  Richard  Roe  for  the  purpose  of  collecting  the 
paper,  and  is  a  "  restrictive  indorsement."  Many  banks,  however,  will 
not  accept  this  form  of  indorsement,  but  will  require  a  blank  or  special 
indorsement,  without  the  restrictive  words /or  collection. 

1  he  prudent  business  man  will  always  make  use  of  the  special,  instead 
of  the  blank,  indorsement  as  a  matter  of  precaution.  Paper  is  usually 
sent  to  the  bank  by  messenger,  whose  carelessness  or  dishonesty  may  result 
in  loss  to  the  owner  unless  the  paper  is  fully  indorsed.  1  he  same  consider- 
ation makes  it  imperative  that  paper  payable  to  bearer  should  not  be  sent 
through  the  mails.  A  further  consideration  that  should  weigh  in  the  matter 
of  drawing  and  indorsing  commercial  paper  is,  that  such  paper,  after  it  is 
paid  and  canceled,  should  be  available  as  evidence  of  all  the  parties  involved 
as  givers  and  receivers  of  %'alue. 
Ordering  Goods 

All  sales  and  purchase  transactions  originate  in  some  torm  ot  order. 
Orders  are  usually  sent  bv  mail.  If  the  telegraph  or  telephone  is  used, 
such  communication  should  be  promptly  confirmed  in  writing,  so  that  if 
a  mistake  is  made  in  transmission,  it  may  be  rectified  at  the  earliest  possible 
moment. 


198  ACCOUNTS  AND  ACCOUNTING   PRACTICE 

In  the  exercise  following,  all  orders  will  be  written  in  the  order  book 
ill  triplicate,  and  nunilured  conseciiti\ely.  1  he  original  white  copv  will 
be  mailed  to  the  supplier,  and  the  \  ellow  triplicate  will  be  placed  in  the  book- 
keeper's Hie  for  checking  the  invoice  when  it  arrives.  The  duplicate  tissue 
will  remain  m  the  order  book. 
Handling  Customers'  Orders 

\\  hen  .in  order  is  received  from  a  customer,  it  shouKl  In  copied  in 
triplicate  on  the  order  form  provided.  1  he  original  white  copy  is  passed 
to  the  credit  man  tor  his  approval,  and  is  placed  on  Hie  for  reference.  The 
duplicate  is  passed  to  the  warehouse  or  factory  to  be  executed,  while  the 
third  copy  is  forwarded  to  the  customer,  accompanied  with  a  form  letter  of 
acknowledgment.  W  hen  an  order  is  taken  by  a  salesman  on  the  road,  two 
copies  will  ordinarily  be  received  on  the  order  form,  the  third  having  been 
left  with  the  customer. 
Invoicing 

()rd;Ts  sent  to  the  warehouse  will  be  filled  by  the  shipping  clerk,  and 
reported  back  on  another  form  called  a  "  shipping  order."  The  shipping 
order  will  contain,  besides  the  data  given  on  the  customer's  order,  register 
and  bale,  or  case,  numbers.  Ihe  bookkeeper  enters  prices  on  the  shipping 
order  and  makes  extensions.  It  is  then  passed  to  the  invoice  clerk,  who 
prepares  and  mails  the  invoice  in  an  "  outlook  envelope." 

Orders  sent  to  the  factory  are  filled  and  reported  back  on  a  form  called 
a  "  consignment  invoice  "  in  duplicate.  Prices  are  entered,  extensions 
made,  and  the  customer's  invoice  prepared.  One  copy  of  the  consignment 
invoice  is  returned  to  the  factory,  with  our  remittance  for  the  proceeds, 
at  the  tune  of  settlement. 
Terms 

L  niess  otherwise  specihcd,  tiu  terms  of  each  sale  in  the  following  exer- 
cise include  a  discount  oflermg  of  4','  for  payment  within  ten  days  from  the 
invoice  "  dating."  Invoices,  particularly  in  the  carpet  trade,  usually  bear 
two  dates.  One  has  reference  only  to  the  date  of  shipment,  and  is  taken 
from  the  shipping  order,  or  consignment  invoice.  1  he  other  indicates  the 
term  ot  credit  offered,  lor  illustration,  an  invoice  made  Jan.  7,  "  March 
I  dating,  terms  4'(  10  days,"  may  be  paid  as  late  as  March  11,  with  the 
discount  deducted.  The  long  terms  of  credit  which  obtain  in  the  carpet 
trade,  obviously  cannot  be  adopted  in  a  text  book  without  extending  the 
narrative  over  a  period  of  time  much  too  long  for  school  purposes.  Ihe 
terms  ot  credit,  theretore,  have  been  arbitrarily  shortened  to  give  the 
student  a  \  ariety  of  practice  without  undue  repetition. 
Claim  Adjustments 

I  here  is    in  \  iitually    every  business    involving  the    transportation  of 
commodities,   numerous  claims   against    transportation   companies    for  the 


BUSINESS   PRACTICE   AND   PROCEDURE  199 

loss  of,  or  damage  to,  goods  in  transit.  1  he  shipper  (seller)  usually  takes 
the  attitude  that  when  he  delivers  the  goods  to  the  transportation  com- 
pany "  in  apparent  good  order  and  condition  "  and  receives  a  "  clean  " 
hill  of  lading,  his  responsibility  ends.  Invoices  often  hear  notices  to 
customers  to  this  eflecr.  Customers,  however,  often  ignore  this  provision, 
accept  short  dehxeries,  damaged  goods,  etc.,  and  deduct  the  \alue  of  short 
delivery,  or  damage,  as  the  case  may  be,  from  their  remittances.  Because 
the  seller  docs  not  wish  to  ottend  a  customer,  however  unreasonable,  he 
accepts  the  situation,  aiul  attempts  to  reco\er  from  the  transportation 
compan\'. 

Before  the  transportation  company  will  consider  a  claim  it  usually 
requires  a  copy  of  the  bill  of  lading  and  a  certified  copy  of  the  seller's  in- 
voice. Not  until  the  traffic  department  has  in  hand  documentary  evidence 
of  the  loss  suffered  will  settlement  be  made. 

Filing  Papers 

^  ou  will  find  in  your  supplies  various  receptacles  which  are  labeled  as 
follows  :  "  Shipping  Orders,"  "  Bookkeeper,"  "  Letters,"  "  Paid  Invoices," 
"  \  ouchers,"  "  Outgoing  Mail,"  "  Bank,"  and  "  Safe."  It  is  not  sug- 
gested that  these  will  give  the  student  a  knowledge  of  how  papers  are  filed 
in  a  business  office.  Some  orderly  disposition  of  your  papers  is  necessary 
as  you  pass  over  them  for  the  time  being,  so  that  you  may  refer  to  them  as 
occasion  requires.  These  devices,  however,  will  test  the  student's  aptitude 
for  order  and  system.  The  slovenly  and  disorderly  individual  soon  comes 
to  grief  m  handling  documents  involved  m  office  routine.  If  you  aspire 
to  success  in  any  business  position,  cultivate  orderly  habits. 

Numbered  transactions  in  the  text,  when  instructions  are  not  fully 
given,  refer  to  a  numbered  document,  or  documents,  from  which  the  facts 
involved  must  be  largely  inferred.  This  is  an  exercise  in  the  interpretation 
of  business  papers,  and  facts  of  which  documentary  evidence  is  available 
will  be  largely  neglected  in  the  text.  Study  each  situation  as  it  arises, 
and  do  not  go  ahead  until  you  have  a  complete  understanding  of  the  cir- 
cumstances involved. 

Form  Letters 

Manv  of  the  connnunications  sent  out  of  a  business  office  are,  tor  the 
most  part,  repetitions  of  former  communications  on  the  same  subject.  In 
making  and  acknowledging  remittances,  acknowledging  orders  and  the 
like,  the  language  employed,  except  for  the  date,  address,  and  amount 
involved,  is  practically  the  same.  Manifestly,  if  these  stereotyped  forms 
of  expression  are  printed,  leaving  blank  spaces  lor  such  pair  of  the  com- 
munication as  varies  in  each  case,  much  time  and  labor  are  saved. 


200  ACCOUNTS   AND   ACCOUNTING   PRACTICE 


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/•^ 

.181 

15 
.iz\ 

.14^ 

^7 
..62 

7c? 

• '  5 

/P 

.18 

20 

•^1 

22 

•'32 

.16.^ 

■i7-i 

25 
..3i 

26 

27 

28 
.18; 

20 

•«4} 

JO 

.13 

WHOLESALE    CARPET    BUSINESS 


20T 


Matting  —  Lotus 


■3-1 

2 

.151 

3 

.i4 

4 

■  i4 

5 
.11! 

<5 
.12I 

7 
•13 

•I3f 

P 

•xsi 

10 
•14^ 

II 

I2| 

12 

.I2| 

.III 

•148 

13 
.14 

/<5 

■Ill 

•IS 

•Mi 

20 
•12f 

21 

I3l 

22 

23 

.i3l 

24 

■I2f 

25 
.14^ 

2<5 

■13^ 

27 

.12 

28 

.I3f 

2p 
.12^ 

JO 
■I4I 

wholesale  carpet  business 

Exercise  23 

Samuel  Holbrook  and  C.  B.  Rutledge  are  enp;ap;ed  in  the  wholesale 
carpet,  niartinp;,  and  linoleum  trade  as  partners,  under  the  Hrm  name  of 
Samuel  Holhrook  6:  Co.  Mr.  Holbrook  owns  a  two  thirds'  interest,  but 
proHt  and  loss  are  shared  equally.  The  investments  of  partners  are  equal- 
ized by  allowing  each  6  %  interest  on  his  capital  investment,  which  is  to 
be  adjusted  before  profit  is  stated  and  distributed. 

The  books  are  closed  Aug.  31,  19 —  and  the  following  balance  sheet 
is  submitted. 


Balance  Sheet 

,  Aug.  31,   19 — 

ASSETS 

LlAlilLlTIES 

Casli  :    On  deposit           3840.45 

Notes  Payable,  Sched.  C 

2359 

12 

Office  cash                50. 

3890 

45 

Interest  Accrued  on  Notes  Pay- 

' 

Notes  Receivable,  Sched.  A 

2798 

16 

able 

'4 

S9 

Interest  Accrued  on  Notes  Re- 

Accounts Payable,  Sched.  D 

2502 

12 

ceivable 

5 

61 

Consicnments      (Burt     Carpet 

Accounts  Receivable,  considered 

Co.) 

4252 

53 

good,  Sclied.  i^ 

8450 

20 

Wages  and  Salaries  unpaid 

Stock  of  Merchandise,   per  in- 

Shipping Dept. 

42 

ventory 

27675 

60 

Traffic  IXpt. 

42 

Office  Furniture 

1200 
675 

Office  Help 
Total 

31 

13 

Warehouse  Equipment 

9243 

99 

Traffic  P^quipment 

7540 

Sam'l  Holbrook, 

Office  Supplies 

165 

Capital                      29988.31 

1 

Shipping  Supplies 

630 

C.  B.  Rutledge, 

Traffic  Supplies 

275 
369 

45 

Capital                       14994.16 

44982 

Salesmen's  Account 

lirm's  Capital 

47 

Commission  Earned 

244 

94  1 

Prepaid  Insurance  and  Ta.xes 

30:^ 
,-4: 

Oq  1 

14-26 

46 

202 


ACCOUNTS   AND  ACCOUNTING   PRACTICE 


ScHEDui  I    A  (Notes  Receivable) 


l"he  New  EnKland   Furniture  Co.,  datid  June      5  at  3    mo. 
'I"he  InRham  Linoleum  Co.  "        |ul\       i   "    4 

Henrv  W.  StronR  "        |ul>  17  "    ;, 

riie  J:  K.  Keith  Furniture  Co.  \u^.      i   "  (>o  days 

Place  &  Pelton  An;;,  i^  "  <)0     " 

Davis  ic  Mlackhurn  "       An^.  :;  "    50     " 


ScHFDULH   B   (Accounts  Rixkivafjlk) 


465 
386 1 

553' 

31K    66 
700 
375 i SO 


Russell   Sprague,   Inc.      In\    ..^    ut   June   5,  Sept.   i    dating,  terms, 

4%  10  days  386  j  50 

Invoice  of  July  7,  Sept.   15  dating,  terms, 
4' ',    10  days 

J.  M.  Fiagg  &:  Co.  '  Invoice  of  May     7,   4  mo.   dating, 

"  June     I,  Sept.   I 
July  5,  60  days 


«< 


National  Furniture  Co.     Invoice  of  Jiil\-  .:o,  60  dars  dating 

"  Aug.  12,  Sept.  I        " 
25,  30  days 
7,  Sept.  1 5 


44  44 


<< 
4t 


Hemstrect  Furniture  Co.  Invoice  of  Aug.  18,  30  days  dating 

11,30      " 


44  44 


Ingham  Lmokum  Co. 


Buttcrworth  &  Co. 
Carter  Brothers 


Invoice  of  lune  27,  90  da)s  dating 
"  July     7.  Oct.    15       " 
•'      "     30,  60  days       " 

Invoice  of  July     i,  60  days  dating 
Invoice  of  Aug.     7,  Sept.   I         " 
25,  30  days 


798  ,  04  ^ 

Q76I  t;o     1774  '  ;;4 


OpHNING   TUV    Hooks 
Procedure 

1.  Compare  the  notes  and  acceptances  in  your  possession  wirli  SchecliiK 
.•\  items.  I'ind  the  maturitv  of  each  paper  and  enter  the  details  in  thi- 
notes  receivable  record.       lile  all  notes,  drafts,  and  clucks  in  the  **  Safe." 

2.  Compare  the  unpaid  inv(Mces  with  ScheduK-  I)  items,  and  Hie  such 
invoices,  together  with  consignment  invoices  and  orders,  in  "  HiH)kkeeper  ' 
file. 

'  Terms  on  all  invoices  4  %  10  days. 


WHOLESALE    CARPET    BUSINESS 


203 


ScHF nr I  r   C   (Notis   Pa^aiu.e) 


National  Fiber  Matting  Co.,  dated  June  5,  at  4  mo.,  with  interest  at 

6 ',(,  per  annum 
St.  Louis  Floor  Covering  Co.,  dated  July  17,  at  4  mo.,  with  intere.st  at 

6  ',(   per  annum 
Frank  II.  Spencer  &  Co.,         note  dated  June  n,  at  3  mo. 

"         "      Auk.  24,  "    3    " 


The  Cliicai;()  Ruj;  Co., 


note  dated  Aujj.  20,  at  i  mo. 
with  interest  at  6  %  per  annum 


Note.  —  All  notes,  e.xcept  that  of  Jul}'  17  favor  St.  Louis  Floor  Covering  Co.,  are 
pa\able  at  the  Second  National  Bank,  at  3'our  address. 


ScHEDiir   D   (AccorxTs   Payable) 


James  E  Simnuuis  .x  Co.     liuouc  of  Aug.  30,  lu  i  r.ish 

"        "  July  7,  60  days'  dating,  terms, 
4%  10  days 

The  Hartford  Carpet  Co.    Invoice  June  15,  terms,  3  mo.  net 

"       Aug.  23,  4%  10  days,  or  4  mo. 

net 
The  J.  W.  Hawthorne  Co.  Invoice   of  Aug.    25,    Sept.    15    dating, 

terms,  2  '^  10  days 
J.  \V.  Stilwell  &  Sons  Invoice  of  July  i,  Sept.  i  dating,  terms, 

4  %  10  days 


752 

83 

334 

7« 

1087 

314 

21 

30s 

10 

619 
392 

402 

61 

31 

50 
70 


3.  Find  the  maturity  of  all  Schedule  C  items  and  enter  the  details 
m  the  notes  payable  record. 

4.  Foot  Schedule  B  items  and  compare  the  footings  with  the  Accounts 
Receivable  account  m  the  balance  sheet.  Open  the  customers'  ledger. 
Enter  each  invoice  separatel\'  and  indicate  the  terms  in  the  wide  column. 
Give  the  National  Furniture  Co.  ten  lines;  J.  M.  Flagg  &  Co.  and  Ingham 
Linoleum  Co.,  eight  lines  ;  all  other  customers,  six  lines. 

5.  Open  the  general  ledger  with  the  accounts  listed  in  the  balance 
sheet,  except  .Iccounts  Payable.  In  place  of  this  account  open  an  account 
with  each  trade  creditor  (Schedule  D),  gning  to  each  six  lines.  I  nless 
transactions  with  a  creditor  are  continuous,  you  should  avoid,  if  possible, 
opening  an  account  with  him  in  the  ledger.  Several  expedients  are  resorted 
to  in  order  to  save  the  labor  of  opening  personal  accounts  with  transients: 
(i)  So  far  as  practicable  make  no  enti\  until  the  transaction  is  executed; 
(2)  when  credit  has  been  given  in  the  purchase  book  and  settlement  is  made 


204  ACCOUNTS   AND   ACCOUNTING   PRACTICE 

bcfoif  rht  |">>im^  i>  icaclu'd,  use  cross-reference  post-marks  ;  (3)  if  transient 
items  have  to  be  posted  at  the  end  of  the  period,  ^roiip  them  under  the  cap- 
tion **  I'ransient  Accounts  I*ayahle,"  or  some  such  descriptive  title;  (4)  in 
closinji  expense  accounts  iinoK  inj;  unsettled  items,  credit  the  new  account 
instead  of  the  person  owed,  although  this  latter  expedient  is  condemned 
by  some  accountants. 

(iroup  accounts  with  reference  to  the  source  book  in  which  they 
originate  and  to  the  conclusions  to  which  the\  lead.  I'or  the  purpose  of 
this  exercise,  the  following  order  is  suggested.  The  number  in  parenthesis 
indicates  the  number  of  lines'  space  the  preceding  account  recjuires.  If 
the  space  is  not  intlicated,  give  the  account  .six  lines. 

Samuel  llolbrook  (Capital),  Samuel  Uolbrook  (Private),  C.  I^  Rut- 
ledge  (Capital  I,  C.  B.  Rutledge  (Private),  Cash,  Notes  Receivable  (10), 
Accounts  Receivable  (10),  .Merchandise  Stock,  Merchandise  Purchases, 
Merchandise  Sales,  Consignments  (lo).  Profit  iS;  Loss,  Commission, 
Selling  Expense,  Shipping  P^xpense  (10),  Traffic  Kxpense  (10),  Office 
Expense  (lo).  Shipping  Supplies  (10),  Traffic  Supplies  fio),  Office 
Supplies  (10),  General  Kxpense,  Insurance  &  Faxes,  Interest  &  Discount 
(10),  Interest  on  Capital,  .Merchandise  Discount,  Reserve  for  Sales  Dis- 
count, Office  Furniture,  Warehouse  Equipment,  Traffic  Ecjuipment,  Sales- 
men's Account,  Notes  Payable  (10),  accounts  with  trade  creditors,  Tran- 
sient Accounts  Payable. 

6.  Open  your  cash  book  with  the  cash  balance,  entering  the  amount 
short.  F^nter  the  bank  balance  on  the  check  book  stub  at  the  top  of  page  I. 
Assume  that  your  bank  pass  book  was  written  up  .Aug.  31,  at  which  time 
checks  aggregating  ^434.90  had  not  been  returned  to  the  bank,  and  were 
consequently  not  charged  against  you  at  that  time.  What  balance  should 
the  pass  book  show  ?  Flave  this  amount  entered  on  the  left  page  of  the 
pass  book,  first  line,  by  your  teacher,  or  by  some  one  designated  by  him,  as 
follows,  ^-lug  31  {current  year)  Balance  $,  I  he  pass  book  is  the  bank's  record 
of  your  transactions  with  it.      ^ Ou  should  make  no  entries  in  this  book. 

7.  Fjuer  the  transactions  set  forth  in  the  following  narrative  and 
accompanving  documents.  In  dating  transactions  and  documents,  use 
the  current  year.  Complete  all  records  and  file  all  papers  relating  to  a 
transaction  before  you  proceed  with  the  next. 

8.  In  the  following  exercise  the  student  will  be  recjuired  to  send  repeat- 
edly at  least  three  types  of  letters;  namely,  those  accompanying  and 
acknowledging  remittances,  ;md  those  acknowledging  orders.  He  should 
accordingly  prepare  ;it  the  beginning,  and  submit  for  ;ippro\  .il.  three  form 
letters  that  may  be  used  for  the  purposes  mentioned  as  occasion  arises 
(See  Form  Letters,  page  199.) 


WHOLESALE   CARPET    BUSINESS  205 

September  Narrative 

(Samuel  Holbrook.  &  Co.) 

September  i,  19 — 

No.    I.  —  Give  James  Simmons  &  Co.  check  for  invoice  of  Aug.   30. 

Among  your  supplies  you  will  Hnd  a  power  of  attorney  authorizing 
you  to  sign  or  indorse  the  name  of  Samuel  llolhrook  &  Co.  to  all  i-)apers 
that  go  to  the  Second  National  Bank.  All  other  papers  ma\  he  signed 
"Samuel  Holbrook  &  Co.  by  (your  own  name)."  Write  your  name  in  the 
proper  spaces  in  the  power  of  attorney,  fill  m  the  date  and  file  in  "Safe." 

Remove  the  invoice  from  "  Bookkeeper  "  file  and  consult  their  ac- 
count in  the  ledger.  Fill  out  the  check  stub  first.  Number  the  checks 
consecutively.  Deduct  the  amount  of  the  check  from  your  bank  balance 
to  show  the  new  balance.  Consult  model  (page  195)  and  exercise  the  ut- 
most care  in  writing  checks.  Have  you  prepared  the  form  letter  of  remit- 
tance .'  (See  Form  Letters,  page  199.)  If  not,  do  so  now.  Fold  the  check 
in  form  letter  and  file  in  "  Mail."  Mark  the  invoice  Paid,  with  the  date 
and  check  number,  and  file  in  "  Paid  Invoices."     Enter  in  cash  book.     (5-8) 

Note.  —  For  the  student's  convenience  in  allocating  items  in  the  cash  book,  he  may 
number  the  money  columns  in  lipht  pencil  figures  from  left  to  right  across  both  pages.  The 
niiinbers  in  parenthesis  indicate  the  mone}'  columns  involved  in  making  the  entry.  Do  not 
lollow  these  numbers  blmdly.  Know  the  reason  \vh)'  they  are  used  in  each  rnst-.  These 
index  numbers  will  be  given  in  a  few  transactions  only. 

No.  2.  —  Leave  the  New^  England  Furniture  Co.'s  note  of  June  5,  last, 
at  the  Second  National  Bank  for  collection.  Read  again  the  paragraph  on 
indorsements  (page  196)  and  properly  indorse  this  note.  Have  the  amount 
entered  in  the  back  of  your  pass  book  as  a  receipt  for  the  paper  you 
deliver  to  the  bank.  File  the  note  in  **  I^ank  "  file.  Where  must  this  note 
be  presented  for  payment  :  How  will  it  reach  the  bank  at  which  it  is 
payable  r  Does  making  a  note  payable  at  a  bank  authorize  such  bank  to 
pay  it  .'  W  hat  is  necessary  to  be  done  by  the  maker  of  this  note  to  meet 
It  at  maturity,  and  what  will  happen  if  the  note  is  not  paid  .' 

No.  3.  —  Order  of  Frank  11.  Spencer  i5c  C\).,  Detroit,  Mich.,  the  follow- 
ing: 

9  Kar.    W  ilton  Rugs,  pattern  4025E,  size 
6      "  "  "  "        4016H, 

3  Spec.        "  "  "        03S6L, 

6      "  "  "  "       0486K:, 

Enter  this  order  on  your  order  book.  Use  carbon  paper  and  make 
three  copies.     (Jive  shipping  instructions.     Mail  the  original  white  copy 


ze 

9  X  12 

(( 

83  X  io« 

(( 

lO'"'  X   15 

(( 

9    X    12 

2o6 


ACCOUNTS   AND    ACCOUNTING   PRACTICE 


to  Frank  II.  Spencer  &:  Co.  File  the  yellow  triplicate  in  "Bookkeeper" 
rile.  I  he  ri.ssue  copy  reniain.s  in  the  order  hook.  Beginning  with  4002, 
nuniher  orders  con.seciifi\tly.  lo  distnigm.sh  orders  for  niercliaiidise  from 
those  for  supplies,  mark  the  former  J  and  tiie  latter  G,  as  "  No.  J4CX)2,'* 
.\o.  (14005,"  etc. 

No.  4.  I  his  is  a  consignment  invoice.  These  goods  have  heen 
shipped  hy  the  Burt  Carpet  Co.  on  your  customer's  (jrder  No.  275.  Take 
the  order  from  the  "  Bookkeeper  "  Hie  and  check  ort  shipments,  placing 
the  date  of  shipment,  "8,  31,"  after  each  item.  Write  the  customer's 
invoice  as  follows  : 


WE    RESERVE    THE    RIGHT    TO    ADVANCE    PRICES    AT    ANY    TI.ME    ON 

TEN    days'    notice 

SAMUFL    IIOLBROOK    iv    CO 

• 

ESTAIil.lSHKU    IS54 

KURS 

Carpets 

Mattings 

Linoleums 

The 

Keystone  Furniture  Co. 

Madison,  Wis. 

Tel.  7890  .Main 

Terms :  4  %  10  days 
60  days  extra  doling 

^'our  No. 
Refer  to 
this  fol. 

Mail 
7089 

(Your  address) 

Aug.  31,    19 — 

PAYABLE   ONLY   IN    NEW    YORK   OR   CHICAGO    FUNDS 

251         2 

3047 

8007 

V 

3745 
46 

47 
48 

4'' 
a    M  D 

1 

I 

I 

30 

3 

vX  12  Super.  Axm. 

3                                               18.85 
36"  Khor.  A.\m.                      2.65 
8/3  X  10/6  Cand.  A.xni.        12.65 

C&NW 

56.5s 
79.50 

37w; 

•74- 

Study  this  invoice  carefully,  as  it  should  serve  as  a  model  in  writing  invoices 
later.  Note  that  it  hears  the  date  of  the  consignment  invoice  —  the  date 
the  goods  were  shipped.  Copy  this  invoice  on  a  hiank  pro\ided.  Fnter 
in  the  sales  hook,  extending  the  amount  to  "  Consignments  '  column. 
W  hen  you  enter  a  charge  in  the  sales  hook  from  the  consignment  invoice 
or  shipping  order,  mark  the  paper  frcmi  which  the  entry  is  made  **  S.  B. 
I'ol.  —  "  (the  page  of  your  sales  hook).  Attach  the  customer's  order  to 
the  consignment  invoice  and  return  hoth  to  "  Bookkeeper  "  Hie.  Mail 
the  customer's  invoice  to  the  customer  in  an  outlook  envelope.  Fold  the 
invoice  so  that  the  address  may  he  read  through  the  "  window." 


WHOLESALE    CARPET    BUSINESS 


207 


No.  5.  —  This  shipping  order  shows  goods  shipped  from  our  warehouse. 
Check  this  shipment  witli  customer's  order  No.  276,  "  Bookkeeper  "  file. 
Foot  the  "  ^'ards  "  cohmin,  entei  t  hi-  price  troni  your  price  hst,  which  \our 
instructor  will  assign,  in  the  "  Price  "  column,  and  make  extensions  to  the 
"  Net  "  column.  I  he  *'  Gross  "  and  "  Discount  "  columns  are  to  be  used 
when  trade  discounts  are  involved,  l^repare  the  invoice.  Enter  in  the 
sales  book,  crediting  Mt-rchcnulist'  Sales.  Mail  all  invoices  in  outlook 
envelopes  without  further  instructions.  After  marking  shipping  order  as 
instructed  in  No.  4,  attach  the  customer's  order  No.  276,  and  Hie  in  "  Ship- 
ping Orders  "  file. 

Note.  —  Routine  instructions  will  nut  be  repeated.  Whenever  a  warehouse  shijiping 
order  or  a  consignment  invoice,  from  tlfe  Hurt  Carpet  Co.  turns  up,  you  are  to  prepare  and 
mail  the  customer's  invoice,  and  enter  and  file  all  papers.  When  prices  are  not  given  on  the 
shipping  order,  consult  your  price  list.  The  columns  on  the  shipping  order  to  the  left  of 
the  "  Price"  column  are  for  the  use  of  the  shipping  clerk. 

No.  6.  — All  invoices  covering  supplies  bought  are  passed  upon  by  the 
stock  clerk,  W.  O.  Kendrick.  His  initials  indicate  that  the  goods  specified 
have  been  received.  ^  ou  should  compare  each  invoice  with  the  original 
order  on  file,  verify  extensions,  and  enter  in  purchase  journal,  indicating 
the  page  of  that  book  on  the  invoice.  Charge  this  purchase  to  Shipping 
Supplies^  as  follows : 


Date 

Fo., 

Fkom  Whom  Bought 

Dating 

Accounts  Dr. 

Fo. 

Sundries 

Mdse. 
Purchases 

19— 

8/27 

Leonard,  Cor- 
nell &  Brown 

3/1011/30 

Shipping  Sup- 
plies 

1 

25 

36 

File  unpaid  invoices  in  "  Bookkeeper  "  file  for  future  reference. 

Sept.  2 

No.  7.  —  Discount  Davis  &:  Blackburn's  note  of  Aug.  23  at  the  Second 
National  Bank  and  receive  credit  for  the  proceeds.  C^ompute  the  discount 
and  enter  in  cash  book  (1-3-4).  Enter  all  interest  charges  involved  in 
discounting  paper  in  the  "Sales  Discount"  column  m  red.  When  you 
close  the  cash  book,  state  two  totals,  an  Interest  total  and  a  Sales  Discount 
total.  Enter  the  proceeds  of  this  note  on  your  check  book  stub.  What  is 
your  bank  balance  now  ^  Have  the  bank  give  you  credit  in  your  pass  book. 
Indorse  the  note  in  full  and  file  in  "  Bank." 

No.  8.  Give  the  Hartford  Carpet  Co.  a  check  to  cover  invoice  of 
Aug.  2}  and  take  the  discount.      I'Ollow  instructions  given  in  No.  i. 


2o8  ACCuLMb    AND    All<'LNT1NG    PRACTICE 

No.  Q.  Follow  instructions  given  in  No.  6.  (jive  the  entry  the  in- 
voice date.      (Charge  Shipping  Supplies.) 

No.  ID.  —  Follow  instructions  given  in  No.  5.  (Credit  Merchandise 
Sales  tor  all  warehouse  deliveries.) 

No.  II.  Write  a  check  to  the  order  of  Salaries  i^  Wages,  and  dis- 
trihute  as  follows:  Shipping  K.xpense,  ^63;  Traffic  Expense,  $6};  Office 
K.xpense,  !f>^J.     Cash  ht)ok    (5-8).      File  the  check  in  "  iiank." 

No.  12.  -  Open  the  petty  cash  record  by  entering  the  cash  on  hand 
Sept.  I,  ^50,  in  the  "  Receipts  "  column.  All  currency  payments  are 
entered  in  the  "  Amount  "  column  and  also  in  one  or  more  of  the  columns 
under  "  Distribution,"  so  that  a  trial  balance  of  this  sheet  may  be  taken 
when  the  summary  is  carried  to  the  main  cash  book.  Carry  the  items 
from  the  petty  cash  voucher  to  the  petty  cash  sheet,  charging  the  accounts 
indicated. 

No  13.  —  Discount  The  J.  F.  Keith  Furniture  Co.'s  acceptance  of 
.Aug.  I,  at  the  Second  National  Hank.  loUow  instructions  given  in  No.  7. 
\\  liom  did  we  credit  when  this  acceptance  was  recened  .'  \\  hat  should  we 
credit  now  .'      (1-3-4) 

No.  14.  —  Order  of  the  New  England  Specialty  Co.  for  immediate 
freight  shipment :         ^_.  j^.^j^.^  ..  p^,^^j^,,.^.  ..  ^^.,j^  p^^j^ 

10      "  pat.  J,  carpet  lining 

146  yd.  "  5001  cable  napier 

Write  the  order  in  triplicate  and  make  disjiosition  as  directed  in  No.  3. 

Sept.  5 
No.  15.  —  Prepay  our  note  of  June  5  favor  National  Fiber  Matting  Co. 
Although  this  note  is  payable  at  the  Second  National  Bank,  we  have  an 
understanding  with  the  payee  that  we  may  take  up  notes  in  its  favor  at 
anv  time  when  our  funds  will  permit.  \\  rite  a  check  for  the  proceeds  and 
mail  with  form  letter  of  remittance.  \\  hom  did  we  charge  whi  n  we  gave 
this  note?     What  should  be  charged  now?     (5-8) 

Sept.  6 
No.  16.  — Order  of  the  Penn  Carpit    .Mills.   P|-.iladelplii.i.  I'.i..  prompt 
freight  shipment :  ^  ^^,„  ^.^^^^^^^  ^^^  j^^^^^ 

I       "        "        809      " 

Make  disposition  as  previously  instructed. 

No.  17.  (live  Leonard,  Cornell  &:  Hiown  a  check  for  invoice  of  Aug. 
27,  less  discount  offered.  (5-6-8) 

Note.  —  Avoid  opening  an  account  in  the  ledger  with  this  firm  by  using  cross-reference 
post-marks. 


WHOLESALE   CARPET   BUSINESS  209 

No.  18.  The  pattern  number  letters — K,  C,  and  S  —  indicate 
Kiiorassan,  Candaliar,  and  Superior  grades,  respectively.  Make  extensions 
and  invoice,  dating  invoice  Sept.  4  —  the  date  of  shipment.  Credit  Con- 
signnit'uts  for  all  consignment  sales.  File  both  copies  of  this  consignment 
invoice.      ^  ou  will  need  them  later. 

NoTH. —  1  he  customer's  order  in  sales  transactions  will  hereafter  be  dispensed  with. 
The  procedure  in  every  case  is  the  same. 

Sept.  7 

No.  19. — ^  Give  the  Manila  Burlap  Co.  a  check  for  invoice  of  Aug. 
28.  (5-8)  How  can  we  avoid  opening  an  account  in  the  ledger  with  this 
Hrm  .''     (No.  17)      Follow  previous  instructions  in  every  particular. 

No.  20.  —  Find  total  quantity  in  yards  and  make  extensions. 
Indicate  shipping  directions,  marks,  and  terms  of  sale  on  all  invoices. 

No.  21.  —  Prepay  the  following  items  on  the  shipment  to  M.  Meyer 
&:  Son  (No.  20)  by  check,  payable  to  Cairns  &  Co.,  agents  : 

Freight,  3070  lb.    (n  75  0  per  cwt. 
Insurance,  y^i.55 
State  toll,        .15 

Send  M.  Meyer  &  Son  a  separate  invoice  for  these  items,  terms  net 
cash,  and  charge  Accounts  Receivable  (M.  Mever  &  Son)  for  the  amount. 
(5-8) 

No.  22.  —  Refer   to   No.    15.     What    is   this    document?     Name   the 
parties.     Of  what  value  is  this  paper  to  you  now?     Compare  this  letter 
acknowledging  a  remittance  with  the  one  you  have  written.     File  note  in 
Vouchers. 

Sept.  8 

No.  23.  —  Refer  to  No.  2.  Whom  did  we  credit  when  we  received 
this  note?  What  should  we  credit  now?  (1-4)  What  is  your  bank 
balance  now  ?     Does  your  check  book  stub  show  this  balance  ? 

No.  24. — Order  of  the  Household  Hardware  Co.  (your  place)  for 
immediate  delivery  :      j  j^eg  6  D  coated  nails   @  ^2.20 

I     "    S  D       "  "     (S  $2.10 

Are  you  writing  these  orders  as  you  were  instructed  in  No.  3  ? 

No.  25.  —  Refer  to  the  remitter's  account  to  see  what  item  this  re- 
mittance covers.  (1-2-3)  What  is  our  regular  discount  allowance? 
lile  all  checks  in  "  Safe." 

No.  26.  —  Send  the  Hurt  Carpet  Co.  a  check  for  the  proceeds  of  con- 
signment of  July  I,  No.  A459.  "i'ou  are  allowed  the  same  terms  that  arc 
given   the  customer;    namely,  4%   10    days.     Deduct  the  discount   from 


2IO  ACCOUNTS    AND    ACCOUNTING    PRACTICE 

the  invoice  amount,  and  then  deduct  your  commission  of  6  %,  whicli  is 
based  on  the  invoice  amount,  less  the  discount.-  (5-6-7-8)  Remove  the 
copies  of  this  consignment  invoice  from  the  "  Bookkeeper  "  file,  note  de- 
ductions on  them.  Note  the  date  of  your  remittance  and  check  number  on 
the  pink  copy  and  Hie  in  "  \  ouchers."  Mail  tlu-  white  original  Nsith  \ our 
remittance  to  the  consignor,  the  Hurt  Carpet  Co.  I  his  document,  when 
completed,  is  called  an  "  account  ot  sales,"  or  an  **  account-sales."  It  is 
the  report  of  the  selling  agent  to  the  consignor  of  the  sale  of  a  consignment 
of  goods. 

No.  27.  Deposit  check  of  Buttenvorrh  &:  Co.  in  the  Second  National 
liank.  Read  the  paragraph  on  making  deposits  ( {deposit  licket,  page  193), 
and  follow  instructions.  Enter  the  deposit  on  your  check  book  stub. 
What  is  your  bank  balance  now  ' 

Sept.  9 

No.  28.  Prepay  our  note  favor  St.  Louis  Moor  Covering  Co.  of 
July  17.  \\  rite  a  check  in  favor  of  the  payee  for  the  proceeds  and  mail, 
(5-8)      Is  Interest  a  debtor  or  a  creditor  in  this  transaction  .' 

No.  29.  —  Order  of  riie  Connecticut  Carpet  Co.,  New  Haven,  Conn., 
for  prompt  shipment  b\   freight  : 

2  rolls  pattern  359sP  Axminster 
2     "  "        V^9oF 

2     "  "        3606P 

No.  30.  -  Read  the  letter  accompanying  this  shipping  order.  Take 
an  order  bill  of  lading  —  three  copies  —  from  your  supplies.  Use  carbon 
paper  and  write  in  triplicate.  Both  the  shipper  and  the  agent  of  the  trans- 
portation company  receiving  the  shipment  must  sign  the  original  (yellow 
copy)  of  this  B  I.,  which  should  be  drawn  to  thr  order  of  National  Furniturr 
Co.  Notify  J.  J.  Mason  Co.  Mail  the  original  with  your  invoice.  Kile 
the  "  Memorandum  "  in  "  \  ouchers."  The  "  Shipping  Order  "  must  be 
delivered  to  the  freight  agent.  In  writing  this  invoice  include  prepaid 
freight,  395  lb.  Qi  30^  per  cwt.  Charge  the  National  Furniture  Co.  with 
the  t.  o.  b.  cost  only.  I  he  freight  will  be  charged  through  the  cash  book 
when  it  is  paid. 

No.  31.  Write  a  check  to  the  order  of  Salaries  <5  11  ai^es,  ^174,  and 
distribute  as  follows  :   Shipping  Expense.  ^64  ;  Traffic,  ^^63  ;  Office  Expense, 

Sept.  II 

No.  32.        Make  disposition  as  pre\iously  instructed. 

No.  33.       (ii\e  J.W.  Stilwell  &:  Sons  our  cluik  to  c<n  cr  invoice  of  JuK  I . 

Master  the  situation  before  you  proceed. 


WTIOLESALE    CARPET    RUSIXESS  211 

No.  34.  —  Make  disposition  as  instructed.  "  R.  R.  \V."  is  our  mer- 
chandise stock  clerk. 

No.  35.  —  Invoice  these  bamboo  poles  at  4^  each,  terms,  net  cash. 

No.  36.  —  Invoice  these  color  cards  at  i^4each.  CO.  D.  I  ill  out  an 
express  bill  of  lading,  which  have  the  express  agent  sign,  aiul  file  in 
"  Vouchers."  Insert  the  mvoice  in  the  CO.  D.  express  envelope  properly 
filled  out,  and  deliver  to  the  Pan-American  Express  Company,  which  charge 
m  your  sales  bot)k  with  the  value  of  this  shipment. 

No.  37.  —  Discount,  at  the  Second  National  Bank,  Henry  W.  Strong's 
note  of"  July  17,  and  receive  credit  for  the  proceeds.  Do  nor  forget  to 
charge  the  bank  for  the  proceeds  on  your  check  book  stub,  and  to  receive 
credit  in  your  pass  book.     What  indorsement  is  required  .' 

No.  38.  —  Enter  details  in  note  record  and  journalize  the  entry. 
Where  should  you  file  this  paper.? 

No.  39.  —  Verify  extensions.  Note  the  method  of  deducting  trade 
discount.      Make  proper  disposition. 

Sept.  12 

No.  40.  —  Order  of  the  Bigg  Desk  Co.,  i  roll-top  desk,  ^12. 

No.  41.  —  Invoice  the  rugs  called  for  at  ^21.50  each,  terms  4  %  10  days, 
no  dating.  The  cost  of  this  night  letter,  which  we  have  paid,  will  be 
charged  to  J.  B.  Johnstone  &  Co.  through  the  petty  cash  record.  Render 
them  a  separate  invoice  for  this  item.  Mail  the  two  invoices  under  one 
cover.     Study  the  wording  of  this  telegram. 

No.  42.  —  Refer  to  No.  28. 

No.  43.  —  What  is  this  document  ?  From  whom  received  ?  To  whom 
is  it  payable  :  Can  Samuel  Holbrook  &:  Co.  make  any  use  of  it  .'  Explain. 
Why  was  it  not  drawn  to  the  order  of  Samuel  Holbrook  &  Co.  .'  \\'ould 
you  prefer  this  paper  to  the  check  of  J.  M.  Magg  6:  Co.  on  a  Milwaukee 
bank  .'     \\  hy  :     Make  disposition. 

No.  44.  —  Send  the  Burt  Carpet  Co.  a  check  in  settlement  of  con- 
signment invoice  of  June  i.  No.  A458.  Read  again  the  instructions  given 
in  No.  26,  and  proceed  accordingly.  What  account  is  charged  for  this 
remittance  ? 

No.  45.  —  Deposit  the  check  of  Russell  Spraguc,  Inc.,  and  the  Chicago 
draft  of  J.  .M.  Magg  &  Co.     Follow  previous  instructions. 

Sept.  13 

No.  46.  -  This  communication  is  self-cxplanatorv.  ^'ou  should 
consult  your  note  record  daily  and  take  care  of  maturing  paper.  When 
you  make  a  note  payable  at  a  bank,  you  authorize  such  bank  to  pay  ir, 
which  they  will  do,  provided  you  have  a  sufficient  sum  of  money  on  deposit. 
Banks  usually  send  notices  to  debtors  of  maturing  paper.     \\  hat  entries  .' 


212  ACCOITKTS   AND    AL COUNTING    PRACTICE 

No.  47.  Chill:  this  in\oice  with  order  No.  J4002,  and  niakt-  proper 
disposition. 

No.  48.  Read  caretull\  and  niakt-  proper  disposition.  "  lerrv  "  is 
a  trade  name  for  ingrain.  Explain  "payable  with  e.xchange  "  and  "sub- 
ject to  draft." 

No.  49.  I  Iiis  is  in  settlement  of  our  invoice  ot  Sept.  i  i.  Spread  the 
details  on  the  note  record  and  journali/.e  the  entr\.      lile. 

No.  50.  ()rder()fthe  IVnn  Carpet  .Mills,  Philadelphia,  Pa.,  for  prompt 
freifiht  deliver)  : 

lapestry,  velour  body  — 

I  roll  each,  patterns  6,  8,  antl  i  i 
3  rolls,  pattern  5 

No.  51.  (mvc  Frank  II.  Spencer  &  Co.  a  check  for  invoice  of  Sept.  4. 
Look  up  the  terms  of  this  iinoice  before  you  proceed. 

Sept.  14 

No.  52.  Discount  Place  &  Peltons  note  of  Aug.  16  at  the  Second 
National  Bank,  and  receu'e  credit  foi  the  proceeds.  What  is  vour  bank 
balance  now  .' 

No.  53.  —  Give  James  E.  Simmons  &  Co.  a  check  to  cover  invoice  of 
July  7. 

No.  54.  Give  the  Hartford  Carpet  Co.  our  30-day  interest-bearing 
note  in  settlement  of  invoice  of  June  i^.  Write  the  note  under  date  of 
Sept.  15  on  a  form  provided,  and  mail.  A  brief  letter  should  accompany 
this  remittance.  In  what  books  should  the  record  be  made  .'  Name  the 
debtor ;   the  creditor. 

No.  55.         I  hese  nails  are  for  the  shipi"»inii  department. 

No.  56.     -What  account  should  be  charged  for  this  item.'     In  what 

book  .' 

Sept.  16 

No.  57.  —  Mr.  Rutledge  was  away  on  the  9th,  so  the  pettv  cash 
voucher  for  last  week  went  over.  Enter  the  charges  against  J.  B.  John- 
stone &  Co.  and  Consignments  (Burr  Carpet  Co.)  in  the  sundries  column, 
all  other  items  as  indicated. 

No.  58.  Give  the  Bigg  Desk  Co.  a  check  to  co\er  iinoice  of  Sept.  14. 
Cross-reference  post-marks. 

No.  59.     -  For  invoice  of  Sept.  4.     Verify,  enter,  and  hie. 

No.  60.  ~  Make  extensions,  deducting  trade  discounts.  .Assume  that 
this  shipment  is  made  on  a  straight  bill  of  lading.  Take  the  blanks  from 
your  supi-)lies  and  lill  out  the  bill  of  lading,  assuming  that  there  are  ten 
cases  weighing  2150  lb.,  at  50  p  a  cut.,  and  that  the  freight  is  to  be  paid 
by  the  consignee. 


WHOLESALE    CARPET    BUSINESS  213 

No.  61.  —  Draw  a  draft  at  sight  on  M.  Meyer  &  Son,  San  Jose,  Cal.,  for 
invoice  of  Sept.  6,  covering  prepayment  of  freight,  insurance,  etc.,  and  pass 
the  draft  through  the  Second  National  Bank  for  collection.  Write  the 
draft  on  form  provided  and  hie  in  "  Bank."  Have  the  item  entered  in 
the  back  of  \  our  pass  book.     To  whom  should  this  draft  be  made  payable  .^ 

No.  62.  W  rite  a  check  to  the  order  of  Salaries  i^  Wages  and  distribute 
as  follows:  Shipping  department  wages,  ^64;  drivers'  wages,  ^^63;  wages 
of  office  help,  ^^47. 

No.  63.  Cjive  the  Burt  Carpet  Co.  a  check  for  the  proceeds  of  their 
consignment  of  Sept.  4,  No.  A461.  Deduct  discount  and  ccMiimission  as 
previously  instructed. 

Sept.  18 

No.  64.  —  Prepay  our  note  of  Aug.  24,  favor  Frank  H.  Spencer  &  Co. 

No.  65.  —  Return  to  the  New  England  Specialty  Co.  i  bale  of  carpet 
lining  at  ^6.  This  is  a  part  of  their  invoice  of  Sept.  8.  The  lining  was  found 
to  be  badly  torn.  Notify  them  by  letter  of  this  return  and  ask  for  credit. 
What  entry  .? 

No.  66.  — Order  of  the  Card  Board  Box  Co.  (your  place),  for  prompt 
delivery  to  our  warehouse,  100  #16  bo.xes  51 1  X  22  X  8. 

No.  67.  —  Make  disposition  as  previously  instructed. 

No.  68.  —  Our  Aug.  7th  invoice  to  Carter  Brothers  Co.,  Cincinnati,  0., 
fell  due  Sept.  11.  Draw  a  sight  draft  on  them,  and  pass  it  through  the 
Second  National  Bank  for  collection.  To  whom  should  this  draft  be  made 
payable  : 

No.  69.  —  In  payment  of  our  invoice  of  May  7.  Verify  and  make 
proper  disposition. 

No.  70.  —  Order  of  Taylor,  Cooper  &  Co.,  485  Adams  St.,  Chicago,  III., 
for  prompt  freight  shipment : 

8  rolls  Axminster,  pattern  2253 
2  rolls  I  border 

No.  71.  — Order  of  A.  W.  Bowman  &  Co.,  Chicago,  111.,  to  be  shipped 
by  treignt :  jqoq  ji  tracked  corn 

1000  jf  mixed  grain 
500  If  meal 
500  jf  corn 

No.  72.  ( )rder  of  the  Swift  Dustout  Co.,  Front  &:  Carr  sts.,  Cincin- 
nati, ( ).,  to  be  shipped  by  freight:    i   bbl.  "  Dustout." 

No.  73.  —  (live  the  New  England  Specialty  Co.  a  check  for  invoice  of 
Sept.  8,  less  returns  and  discount.  On  what  amount  should  the  discount 
be  computed  .' 


214  ACCOUNTS   ANU   ACCOUNTING    PRACTICE 

No.  74.  Diposir  all  cash  items  on  hand.  W  hat  is  your  bank  bal- 
ance now  .' 

Sept.  19 

No.  75.  (  )rckr  of  rht.  .Mohawk  .Manufacnirini:  Co.,  Amsterdam, 
N    ^  .,  to  be  shipped  promptly  by  freight  : 

Amsterdam  W  ilton  Rugs  — 

Patt.  OV/'K    27"     -    ^4"        ;       (     .<    ;. 

4  '      -  7  '^'       .>  '>^-^5 

8/3  X  iO;6     3  26.75 

03S9L         9  X  10/6     3  27.05 

0472  F    10  6  X  15        3  48.30 

No.  76.  In  settlement  of  our  CO.  1).  shipment  to  W.  M.  Grav. 
\\  horn  did  we  charge  for  the  value  of  this  shi|iment  .'  \\  horn  should  we 
credit  now  .'      Make  disposition  and  Hie. 

Sept.  20 

No.  77.  Consult  your  notes  pa\able  recced  and  make  proper  dis- 
position. 

No.  78.  1  his  material  \m11  be  consumed  by  our  drayage  trucks. 
\\  hat  account  should  be  charged  r 

No.  79.        .Make  disposition  as  usual. 

No.  80.  -  Remit  the  Penn  Carpet  Mills  by  check  in  settlement  of 
their  invoice  of  Sept.  1 1.  Write  them  a  letter  accompanying  this  remittance 
and  ask  them  if  they  will  accept  our  30-day  interest-bearing  note  for  j^200, 
and  cash  for  the  balance,  in  settlement  of  their  invoice  of  Sept.  18,  allowing 
us  the  4'^(  discount.  Look  up  your  a\ailable  assets  and  assign  some  reason 
foi-  this  request. 

No.  81.  I.xpi.iiii  tlu-  inacnce  of  (luoting  tiade  discounts.  Dif- 
ferentiate trade  discount,  cash  discount,  bank  discount. 

No.  82.  In  settlement  of  our  invoice  of  Aug.  i  i .  \\  ho  is  the  drawer  .' 
Drawee  .'  Payee  ?  Under  what  title  should  this  be  recorded  on  your  books  ? 
How  can  Samuel  Holbrook  &:  Co.  make  use  of  a  paper  payable  to  the 
Ilemstreet  Furniture  Co.  .'     How  does  this  paper  differ  from  a  check  : 

No.  83.  -  Remit  the  Burt  Carpet  Co.  in  settlement  of  their  consign- 
ment of  .Aug.  I  I,  No.   1547.      I'ollow  the  usual  procedure. 

Sept.  21 

No.  84.  Discount  tlu  Inuh.ini  Linoleum  Co.'s  note  of  JiiK  i,  and 
receive  credit  for  tlu  proceeds.      \\  hat  is  your  bank  balance  now  ? 

No.  85.  Order  of  the  L  W  .  Hawthorne  Co.,  Philadelphia,  Pa.,  for 
prompt  freight  delivery  . 


WHOLESALE   CARPET    BUSINESS  21 5 

Pat.  606F     25     9  X  12  Spec.  Bruss.  Rugs      @  $15.70 
612A     25     9  X  12      "  "  "  15. 

No.  86.  -  One  of  your  accounts  must  be  settled  to-day  to  take  the 
discount.     Attend  to  it. 

No.  87.        Refer  to  No.  61  and  make  proper  disposition. 
No.  88.        Deposit  all  cash  items  on  hand. 

Sept.  22 

No.  89.  —  For  invoice  of  jul\  5.  Define  a  promissory  note.  Name 
the  parries.  \\  hen  does  a  note  draw  interest  .''  Verify  the  amount  of  this 
paper  and  make  usual  disposition. 

No.  90.  W  hat  is  the  meaning  of  "  Anticipation  allowed  at  the  rate 
of  6%  per  annum  only  "  :  Are  we  in  a  position  to  take  advantage  of  this 
offer  .'     Why  .'     Make  usual  disposition. 

No.  91.  —  In  settlement  of  our  invoice  of  Sept.  17.     Verify  and  enter. 

No.  92.  —  Note  shipping  instructions  on  this  consignment  invoice. 
Shipments  are  always  made  m  car  lots,  if  possible,  to  obtain  a  lower  freight 
rate.     Make  usual  disposition. 

Sept.  23 

No.  93. — Order  of  the  Jennison  Manufacturing  Co.,  St.  Louis,  .Mo., 
for  shipment  by  e.xpress  as  soon  as  possible  : 

3I  M  shipping  tags  @  $1 
50  tubes  art  paste  @  7  ^ 

No.  94. — Verify.  What  is  the  meaning  of  "  f.  o.  b.  Cincinnati".'' 
W  ho  pays  the  freight  ?  Study  the  accompanying  documents  —  94^,  94/?, 
and  94r.  What  is  a  bill  of  lading?  How  many  kinds  are  there  .^  What 
is  a  freight  bill  .'  What  is  a  delivery  receipt  ?  This  "  Dustout  "  is  to  be 
used  in  sweeping  the  office.     What  account  should  be  charged  ? 

No.  95.  —  Make  usual  disposition. 

No.  96.  —  Write  a  check  to  the  order  of  Salaries  i^  fVages,  $175,  and 
distribute  as  follows :  Shipping  department  wages,  $64;  wages  of  drivers, 
$()}  ;   salaries  of  office  help,  $^S. 

No.  97.  —  Charge  accounts  indicated. 

No.  98.- — Remit  i^200  to  each  of  your  traveling  salesmen;  1'.  O. 
Dowd,  Birmingham,  .Ala.,  and  John  S(]uires,  Portland,  Ore.  What 
exchange  should  you  use  to  enable  your  agents  to  procure  currency  with- 
out inconvenience  ?  Where  is  such  exchange  procurable  at  your  place  .'' 
Decide  what  exchange  is  desirable,  and  ask  your  bank,  or  instructor,  to 
supply  it.     Charge  Salesmen  s  Account  foi  this  remittance. 

No.  99.  We  paid  charges  on  a  telegraphic  order  from  J.  B.  Johnstone 
&:  Co.,  St.  Paul,  Minn.,  Sept.   12,  and  invoiced  his  shipment  on  net  cash 


2i6  ACCOUNTS   AND  ACCOUNTING    PRACTICE 

terms.     F^c  has  not  remitted.     W  hat  is  the  most  effective  method  of  collect- 
ing this  iiccount  .'      1  ake  such  action  as  the  circumstances  require. 

No.  100.        Make  proper  disposition. 

No.  1 01.  Shipments  by  parcel  post  may  he  insured.  Insurance  com- 
panies issue  open  pohcies  covering  all  .shipments.  I  iu  insured  is  pro\  ided 
with  a  book  of  coupons,  each  of  which,  when  attached  to  the  parcel  or 
invoice,  covers  the  risk  up  to  a  certain  amount  I  he  government  will  also 
insure  parcels,  not  to  exceed  i^5oin  value,  on  the  payment  of  a  small  premium. 

No.  102.  —  Send  the  J.  \\  .  Hawthorne  Co.  a  New  ^'ork  draft  in  settle- 
iiuiit  of  their  invoice  of  Aug.  25.  \\  rite  \()ur  check  to  the  order  of  Xt'w 
)'ork  draft  for  the  amount  and  have-  the  draft  made  payable  to  the  order 
of  Samiifl  Ilolbrook  l^  Co.  What  must  you  do  to  transfer  it  to  the  J.  \\  . 
Hawthf)rne  Co.  } 

No.  103.        Ihese  boxes  are  for  the  shipping  department. 

No.  104.  Remit  the  Standard  ( )il  Co.  a  check  for  the  invoice  of 
Sept.  15. 

Sept.  26 

No.  105.        Make  proper  disposition. 

No.  106.  -  Horse  feed.  This  freight  bill  will  be  charged  through  the 
cash  book  when  paid. 

No.  107.  —  Post  J.  M.  Hagg  &:  Co.'s  account  to  date.  Make  a  tran- 
script of  the  account  on  the  statement  form  among  your  supplies,  and  mail. 
Give  complete  information  respecting  each  item. 

No.  108.  —  Return  to  A.  \\  .  Bowman  &:  Co.  the  30  bags  charged  to  you 
on  their  invoice  of  Sept.  21.  Ship  on  a  straight  bill  of  lading,  freight  collect. 
Mail  them  the  bill  of  lading  with  letter  of  advice.  Ask  them  to  give  credit. 
\\  hat  account  should  receive  credit  for  this  shipment  .' 

No.  109.  -  For  invoice  of  Aug.  7.  \  erify  and  make  proper  dis- 
position. 

No.  no. —  Remit  the  Hurt  Carpet  Co.  in  settlement  of  tluii  *.<tnsign- 
nunr  of  Aug.  7,  No.  1  546.      Follow  the  usual  prodecure. 

No.  III.  -  -  Deposit  all  cash  items.     What  is  your  bank  balance  now  r 

Sept.  27 

No.  112.        loUow  the  usual  procedure. 

No.  113.  —  X'oucher  check.     Verify  and  make  usual  disposition. 

No.  114.        Refer  to  No.  65. 

No.  115.  1  he  Second  National  Bank  reports  our  draft  of  the  17th 
inst.  on  Carter  Brothers  Co.  returned  unpaid.  \\  rite  them  a  letter  again, 
reminding  them  that  their  account  is  past  due.  .Ask  for  immediate  settle- 
ment. 


WHOLESALE    CARPET    BUSINESS  21  7 

Sept.  28 

No.  116.  —  For  invoice  of  July  20.  \\  hen  did  the  discount  offer  expire  ? 
Should  we  call  their  attention  to  this  oversight  :     Make  usual  disposition. 

No.  117.  -     lor  invoice  of  Aug.  iS. 

No.  118.  —  Make  usual  disposition. 

No.  119. — Are  you  checking  these  invoices  by  comparison  with  the 
original  order  ? 

No.  120.  —  Do  what  the  circumstances  require  in  order  to  take  this 
discount.      \\  hat  entries  .^ 

No.  121.  — Give  the  J.  W.  Hawthorne  Co.  our  30-day  note,  payable 
at  the  Second  National  Bank,  and  dated  Sept.  25,  for  invoice  of  that  date. 

No.  122.  —  Make  usual  disposition. 

No.  123.  —  Make  usual  disposition. 

No.  124. — This  is  in  settlement  of  our  invoice  of  Aug.  7.  When 
did  the  discount  offer  on  this  invoice  expire  ^  Write  Carter  Brothers  Co. 
a  letter  demanding  the  balance  due.  Call  attention  to  the  invoice  dating. 
Credit  their  account  with  the  amount  of  their  remittance  only. 

No.  125.        Deposit  all  cash  items. 

Sept.  30 

No.  126.  —  Discount  J.  M.  Flagg  &  Co.'s  note  of  Sept.  13  at  the 
Second  National  Bank,  and  receive  credit  for  the  proceeds. 

No.  127.  —  Charge  to  shipping  department. 

No.  128.  — Give  the  Swift  Dustout  Co.  a  check  in  settlement  of  their 
invoice  of  Sept.  20. 

No.  129.  —  Give  the  Mohawk  Manufacturing  Co.  our  30-day  note, 
payable  at  the  Second  National  Bank  and  dated  Sept.  24,  for  invoice  of 
that  dare. 

No.  130.  —  Define  a  voucher  check,  and  show  its  advantages.  What 
are  its  disadvantages  .''     Verify. 

No.  131.  —  For  invoice  of  Sept.  24.  Do  not  open  an  account  in  the 
ledger  with  this  firm. 

No.  132.  —  Follow  the  usual  procedure. 

No.  133.  —  Enter  these  items  on  the  petty  cash  sheet,  charging  accounts 
indicated. 

No.  134.  —  Give  the  Andrew  McTigue  Co.,  agent,  a  check  for  )^200,  in 
payment  of  September  rent  of  premises.      File  receipt  in  "  Vouchers." 

No.  135.        \\  rite  a  check  to  settle  this  account. 

No.  136.        W  rite  a  check  for  this  bill. 

No.  137.  Render  a  separate  invoice  for  this  freight,  terms,  net  cash, 
riie  freight  item  will  be  charged  to  McGraw  &:  Elliott  through  the  cash 
book  when  the  freight  is  paid. 


2l8  ACCOUNTS  AND   ACCOUNTING    PRACTICE 

No.  138.  —  Write  the  followinji  checks  : 

In  favor  of  Salarit's  If  U'agiSy  $17^.  Charge  the  shipping  department, 
$>G\;   traffic,  JS63  ;   office,  ,^48. 

In  favor  of  your  lf)cal  railroad  compaii\,  ,^I2<;.74,  to  cover  freight 
charges  for  the  month,  and  distribute  as  follows  :  Office,  )^i. 05  ;  traffic,i?3.6o  ; 
accounts  receivable,  )582. 19  (National  Furniture  Co.  and  McCJraw  &  Elliott) ; 
merchandise  purchases,  ^42. fp. 

In  favor  of  the  Hurt  Carpet  Co.  for  the  proceeds  of  their  consignment 
of  Sept.  20,  No.  A462 

In  favor  of  Ojficc-  (.uj/i  (<»  cosii  |Htt\  c.isli  scmcliers  tor  the  month, 
l.nier  in  petty  cash  book. 

No.  139.  Our  salesmen  report  the  following  expenses  for  the  month  : 
Dowd.  ,'si04.6o;  Squires,  i^i20.  1  heir  salaries  and  commissions  for  the 
month  are:  Dowd,  ;^i<')0.40;  Squires,  )^i46.io.  Charge  these  items  to 
Selling  Expense  and  credit  Salesmen's  Account. 

No.  140.  Make  the  necessary  computations  and  an  entry  to  adjust 
the  interest  on  partners'  capital  one  month. 

No.  141.         Deposit  all  cash  items  on  hand. 

No.  142.  ^'our  collection  charges  for  the  month  of  September  at  the 
Second  National  Bank  are  ^^4.85.      Draw  check  to  cover. 

Procedure 

loot  and  close  the  petty  cash  book,  and  bring  petty  cash  disburse- 
ments into  the  main  cash  book.  Charge  the  items  in  "  Sundries  "  column 
as  follows:  .Iccounts  Receivable  (J.  B.  Johnstone  &:  Co.),  ^.60:  Cnsign- 
ments,  $\-7S- 

Have  your  bank  book  written  up.  Ascertain  your  cash  balance,  and 
prepare  a  reconcili:jtion  statement  that  will  bring  the  main  cash  book, 
pass  book,  check  book,  and  petty  cash  record  into  agreement.      (See  form, 

page  194) 

Summarize  all  books,  post,  take  a  trial  balance,  prepare  a  business  and 
financial  statement,  and  close  the  ledger. 

After  the  posting  is  completed  prepare  an  abstuict  ut  the  customers' 
ledger  (w  list  of  customers'  :iccounts  and  balances  shewn)  and  compare  the 
total  with  the  balance  of  the  Accounts  Receivable  account  in  the  gener;il 
ledger.      If  there  is  a  discrepancy,  locate  and  correct  the  mistake. 

Inventories,  Sept.  30,  19  :  Stock  of  merchandise,  ^25,568.32; 
shipping  supplies,  $()J0.\0\  traffic  supplies,  ^400;  office  supplies,  ^^150; 
prepaid  insurance,  ^^255  ;  commission  recoverable,  ^^206.79.  Reserve  4'^  of 
accounts  receivable  for  merchandise  discount  offered. 


ACCOUNTING   PROBLEMS 
Exercise  24 

1.  P.  R.  Higgins  began  business  Feb,  i,  19 — ,  with  assets  valued  at 
J^yooo  and  liabilities  amounting  to  ^1500.  After  having  been  in  business 
two  years,  1  liggins's  assets  were  $9500  and  his  liabilities  ^$12600.  (a)  Show 
these  facts  in  Higgins's  account,  and  close  the  account,  (b)  Assume  that 
Higgins's  assets  shrink  10%  in  licjuidation  and  that  liquidation  expenses 
are  ^927,  how  many  cents  on  the  dollar  will  his  creditors  receive?  (c)  A. 
\\  .  Strauss,  one  of  the  creditors,  has  a  claim  of  ^^789.45.  How  much  will 
Strauss   receive  in  settlement  ? 

2.  Jan.  15,  19 — .  Howard  Cheston  and  Willard  Mills  are  equal  part- 
ners trading  under  the  name  of  Cheston  &  Co.  The  partnership  is  dissolved 
by  mutual  consent.  Mr.  Cheston  agrees  to  take  over  all  the  assets  and 
assume  all  the  liabilities  of  the  business,  and  to  give  Mr.  Mills  a  promis- 
sory note  due  in  one  year  without  interest  for  Mills's  interest.  The  assets 
are  valued  as  follows:  bank  account,  $865.40;  notes  receivable,  $2000; 
accounts  receivable,  $3165.80;  office  furniture,  $325  ;  horses  and  wagons, 
$865;  stock  of  goods,  $14650;  good  will,  $500.  The  liabilities  are  as 
follows  :  notes  payable,  $1875  ;  interest  accrued  on  notes  payable,  $87.43  '■> 
notes  receivable  discounted,  $850;  accounts  payable,  $2176.75.  Find  the 
amount  due  the  retiring  partner,  (a)  Make  necessary  entries  to  close  the 
books  of  Cheston  &  Co.  (b)  Make  the  entry  or  entries  necessary  to  open 
the  books  of  Howard  Cheston. 

3.  Mar.  I,  19 — .  (With  reference  to  the  preceding  exercise.  No.  2.) 
Howard  Cheston  sells  a  two-fifths'  interest  in  his  business  to  Forest  Grant 
for  cash.  Assume  that  the  busmess  has  earned  a  net  profit  of  $450  since 
Jan.  15,  and  make  the  required  entr}'  or  entries  to  admit  the  incoming 
partner. 

4.  A.  Rosenblum  keeps  an  incomplete  record  of  his  business  transac- 
tions. His  records  show  that  he  owes  Edward  Horn  $1700  on  book  account 
and  that  he  has  outstanding  notes  payable  amounting  to  $1400.  An  ac- 
count with  Morrell  Smith  shows  a  debit  balance  of  $600,  and  a  consignment 
account  shows  $625  due  the  consignor,  W.  A.  Brady.  Goods  valued  at 
$900  have  been  shipped  to  Herman  &  Co.,  Louisville,  from  which  no  returns 
have  been  received.  His  bank  book  shows  a  balance  of  $2300  and  a  note 
in  the  bank  for  collection  of  $200.  Two  other  notes  in  the  safe  amount  to 
$950.  A  third  note  of  .Michael  Cassidy  for  $200,  which  is  in  Mr.  Rosen- 
bl urn's  possession,  has  been  protested  for  nonpayment  ;  protest  fees, 
$2.25,  have  been  paid  in  cash.     His  stock  of  goods  is  appraised   at  $1800. 

219 


220  ACCOUNTS    AND    ACCOUNTING    PR.\CT1CE 

juhii  Ka|>l.in  is  aclmitttd  as  an  e(iual  partiur,  invcstinj^  cash  J?36oo.  The 
IKiitiicTsliip  a^rtcnunt  provides  thar  the  Hrm  of  Roscnbluin  &  Kaphiii 
shall  take  over  all  the  assets  of  A.  Rosenbluin  at  book  value  and  assume 
all  liabilities.  Mi.  Rosenbluin.  however,  guarantees  the  payment  of  all 
notes  and  book  debts.  .All  ilebts  are  ultimately  collected  except  a  note 
for  ^^150.  It  is  then  agreed  that  the  good  will  item  shall  be  reduced  by  the 
amount  of  this  bad  debt  and  charged  to  A.   Rosenbluni. 

Assume  that  the  pannership  books  are  to  be  kept  l\\'  double  entry 
and  make  all  entries  necessar\'  to  record  the  above  facts. 

5.  Hinit  6c  Hill,  merchants,  operate  the  following  books:  cash  book, 
sales  book,  purchase  book,  journal,  general  ledger,  customers'  ledger, 
and  creditors'  ledger.  1  he  footings  of  the  various  columns  in  books  of 
original  entr\'  are  as  follows:  journal  debtor,  accounts  payable,  $1216.80, 
accounts  receivable,  $127.82,  general,  ^^3407. 16  ;  journal  creditor,  accounts 
payable,  ,^312.18,  accounts  receivable,  $1864,  general,  $2575.60 ;  cash  book, 
left  page,  accounts  receivable,  $2418.79,  sales  discount,  $212.45,  general, 
$876.40,  net  cash,  $3082.74;  cash  book,  right  page,  accounts  payable, 
$i;i7.6o,  purchase  discount,  $48.72.  general.  $1292.18,  net  cash,  $2761.06. 

1  he  total  sales  are  $4563.20,  and  total  purchases  $3287. 

On  a  sheet  of  foolscap  paper  rule  the  journal  prescrdied  above.  Enter 
therein  the  journal  totals,  and  after  makmg  journal  entries  which  sum- 
marize the  other  books  of  original  entry,  close  the  journal. 

6.  The  following  items  appear  in  a  trial  balance  Dec.  31,  19 — :  sales, 
$34567. S9;  machinery,  $18760;  office  furniture,  $1012.50.  You  are 
directed  to  reserve  2%  of  sales  for  b:id  debts  :ind  2%  of  sales  for  discount 
ottered,  to  reserve  io%  for  depreciation  of  machinery  and  5%  for  deprecia- 
tion of  office  furniture.  Make  the  entries  necessary  to  accomplish  this. 
Subsecjuently  discounts  ;imounnng  to  $146.82  are  taken  by  customers,  and 
there  are  losses  from  bad  debts  amounting  to  $956.87.  Give  entries  show- 
ing proper  disposition  of  these  discounts  and  losses. 

7.  riie  following  facts  are  t;iken  from  the  books  and  inventories  of 
H.  A.  \'aii<:lin,  Dvc.  31,  19^.  Things  owned:  cash,  $345.70;  notes  re- 
ceivable, $S(/);  accounts  receivable,  $1565.80;  stock  of  goods,  $16028; 
office  furniture, $3 50;  shipping  supplies,  $90.  Unpaid  items:  notes  payable, 
$1150;  accounts  payable,  $i  325  ;  wages,  $26.50  ;  interest  on  notes  payable, 
$13.25.  Business  done  since  the  last  closing,  Sept.  30,  19 — :  purchases, 
$15875;  sales,  $22940;  returned  sales  $1145;  inward  freight,  $438.65; 
purchase  discount  taken,  $187.67;  shipping  supplies  bought,  $640.20;  wages 
paitl.  $565;  selling  expense,  $1789.10;  office  expense,  $1156.60;  interest 
paid,  $<;8.3o;  office  furniture  has  cost,  $400.  Stock  of  goods  on  hand 
Sept.  30,  $13500.  The  proprietor's  capital  at  the  last  closing  was  $13000, 
and  he  has  since  drawn  $193.32. 


ACCOUNTING    PROBLEMS 


221 


Prepare  in  report  form,  trading  account,  profit  and  loss  account,  and 
balance  sheet. 

8.  Ironi  tIk-  tollowinj:;  trial  balance  and  inventories  prepare  in  state- 
ment torm  a  business  and  financial  statement,  dated  Dec.  31,    19 — . 


Trial  Balance,  Dec.   31,   19 — 


H.  A.  Land,  Capital 

H.  A.  Land,  Private 

W.  R.  Ifarland.  Capital 

W.  R.  Harland,  Private 

Cash 

Storage 

Shipments 

Purchases 

Sales 

Freiiiht  Inward 

Kxpense 

Rent 

Insurance 

Horses  &  Wajions 

Furniture  &;  Fixtures 

Real  estate 

Merchandise  Discount 

Notes  Receivable 

John  Mills 

W.  B.  Grant 

Notes  Payable 

R.  T.  Greene 

Commission 

Consignments 


25000 

500 

22000 

500 

22450 

so 

3500 

1000 

4100 

1600 

250 

300 

250 

250 

500 

500 

15000 

200 

500 

3500 

2000 

7500 

2000 

3500 

500 
4500 

3000 

5000 
150 

3000 

4500 

1 

1 

Inventories  and   adjustments  : 

Stock  of  goods,  ^^3212;  prepaid  insurance,  {^45.  It  is  estimated  that 
horses  and  wagons  have  depreciated  io^(,  furniture  and  fixtures  8%. 
Accounts  and  notes  receivable  are  considered  good  ;  but  there  is  one  ship- 
ment of  goods  costing  $850  that  will  probably  not  yield  more  than  75% 
of  such  cost.  Interest  accruals  on  notes  receivable  amount  to  ^23.64. 
December  rent  of  premises  owned  b\'  H.  A.  Land  (partner),  amounting 
to  )^ioo,  has  not  been  paid  or  adjusted.  Allow  6*^;  interest  on  capital  and 
distribute  the  outcome  in  profit  or  loss  equally.  Charge  consignments 
^%  of  consignment  sales,  ^1500  for  commission  earned. 

Set  up  and  close  the  following  accounts  :  shipments,  storage,  consign- 
ments, and  commission. 


INDEX 


Acceptance,  dating  of,  120;  discounting 
drafts  hrfon-.  117;  efTcct  of,  ICXj;  form 
of,  ICa 

Account,  dihmd,  18;  account-sales,  210; 
capital,  32;  liquidation,  71;  loan,  71; 
profit  and  loss,  function  of.  31  ;  traduij;, 
84,  1)7;   vi-ndee,  7 1  ;    vendor,  71. 

Accountinp.  compared  with  bookkeepmj;,  3; 
economic  basis  of,  9;    periods,   12,  28. 

Accounts,  capital,  33 ;  classification  of, 
33;  closing,  136;  construction  of,  21; 
economic,  33;  financial,  33;  groupinR 
in  ledKcr,  204;  interpretation  of,  28; 
payable,  35;  personal,  34;  petty  ac- 
counts payable,  143  ;  profit  and  loss,  33  ; 
receivable,  35;  revenue,  33;  specific, 
33;    trading,  91  ;    workinp,  ^^. 

Accuracy,  importance  of,  45. 

Asset  inventories,  disposition  of,  89. 

Assets  and  capital,  9;  current,  or  "ipiick," 
107;  defined,  18;  fixed,  108;  as  posses- 
sions   and    expectations,    14;    valuation 

of,    I^I. 

Bad  debts,  treatment  of,   172. 

Balance  sheet,  defined,  lO,  42;  forms  of,  85, 
I7v  176;  function  of,  32,  34;  as  owner- 
ship stateniinr.  I7.   ;:!.  SS ;    siv-ioliimn. 

Bank,  account,  how  opened,  193;  banking 
conveniences.  193;  check  book,  195; 
deposit  ticket,  193  ;  pass  book.  H)^, 
204;   proving  cash,  194. 

Bill  of  lading,  straight,  212;  order,  210; 
express.  211;  with  draft  attached, 
117. 

Business,  analy7.cd,  11;  aim  of,  106;  busi- 
ness man's  expectations,  14;   li(iuidated, 

79- 
FJusiness  practice,  1 91-2 18. 

Capital,  .uioiiiits,  33;  charges  to,  ii;9; 
compared  with  profit  and  liabilities, 
9,    1 1  ;    defined,    18;    equalized   by    in- 


terest allowance,  201  ;  mcome,  159. 
(See    Capital    account.) 

Cash  account,  closing,  29,  83  ;  construction 
of,  22-27;  handling  petty  cash,  192; 
proving  cash,  194.  218;  what  consti- 
tutes, 82.     (See  Cash  book.) 

Cash  biKik,  closing,  80-81,  82;  columnar, 
forms  of,  180-186;    function  of,  79. 

Certificate  of  deposit  (see  Deposit). 

Check  book  (see  Checks). 

Check-mark,  form  of,  56;    use  of,  55. 

Checks,  cashier's,  123;  certified,  124;  check 
book,  195;  compared  with  bank  draft, 
123;  parties  to,  (see  Sight  draft); 
voucher,  216,  217;  writing  negotiable 
paper,  196. 

Claims,  for  damage  to  goods  in  transit, 
adjustment  of,  19s 

Closing  entries,  journalising,  rule  to  deter- 
mine, 86-88. 

C.  O.  D.,  sales,  117,  211. 

Columnar  books,  cash  books,  forms  of, 
180-186;  journal,  190;  purchase  books, 
166,  192;    sales  bix'k.   !o:. 

Commission.  157,  191. 

Consignment,  account,  content  of,  191 ; 
goods,    191  ;     invoice,    206. 

(V)ntrolling  accounts,  advantages  of,  189; 
content  of;  188,  189;  in  the  trial 
balance,  189;    purpose  of,  187. 

Cost,  factors  of,  in  trading,  39;  of  goods 
.sold,  30.  39. 

Credit  instruments.  106;  acceptance  of  draft, 
109;  disposition  of,  at  maturity,  no, 
III;  market  for,  108;  maturity  value 
of  notes  and  drafts,  117. 

Credit  memorandum,  157. 

Creiliror,  and  owner,  Ii  ;    defined.  18. 

CustcMin  r-,    ■•  -ounts  of,  how  to  handle,  143. 

Dating  invoices,    198,   206. 

Debtor,  defined.  1 8. 

Deposit,   certificate  of,    124;    ticket,    i')'. 

Depreciation  (see  Reserves). 


322 


INDKX 


223 


Discount,  bank,  formula  for  computing,  115  ; 
clchnccl,  114;  track-,  211,  212;  dis- 
counting time  paper,  196.  (Sec  Mer- 
chandise discount  and  Interest.) 

Drafts,  acceptance  of,  109;  bank,  form  of, 
122;  Chicago,  123;  New  ^'ork,  123; 
parties  to,  no;  rules  to  journalize, 
125;  sight,  forms  of,  122;  time,  forms 
of,    112,    119;     use    of,   in   collections. 


Ilfficiency,  business,  34;    financial,  34. 

Kntry,  content  and  form  of,  41,  44;  de- 
fined, 11;  double  entry  defined,  26; 
final  entry,  42;  opening  entry,  10,  132; 
original  entry,  importance  of,  41  ; 
single,  149. 

Errors,  how  to  prevent,  55;  in  trial  balance, 
how  to  locate,  55. 

Expense  account,  closing,  3  i  ;   content  of,  23. 

Expenses,  defined,  10;  and  losses,  9,  23;  as 
services  of  wealth,  16,  17. 

Filing,  199. 

lire  sale,  treatment  in  accounts,  1 45- 1 46. 
Form  letters,  199. 

Freight,  allowed  us,  161;  inward,  103; 
outward,  91  ;    hill,  215. 

Imprest  fund,  194. 

Index,  ledger,  form  of,  52. 

Indorsements,    classified,    197;     purpose   of. 

Ink,  red,  7. 

Interest,  accrued,  118;  compared  with 
other  rights,  114;  defined,  II4;  and 
discoimt,  113  ;  rule  to  debit  and  credit, 
114;    when  debts  draw,  113. 

Introduction,  basic  principles,  importance 
of,  K;  business  papers,  use  of,  7;  de- 
velopment of  subject,  7;  ink,  use  of 
red  and  black,  7 ;  methods  of  develop- 
ment, 8. 

Inventory,  asset,  treatment  of,  in  ac- 
counts, 29,  89;  defined,  17;  liability, 
treatment  of,  90. 

Invoice,  mailing,  198;  handling,  206;  as 
supplementary  record,  49;  terms  of, 
198;    writing,   198. 

I.  O.  U.,  carried  as  currency,  145. 


Journal,  columnar,  190;  defined,  10,  41; 
entries,   46;    content   and   form  of,  41. 

Journalizing,  closing  entries,  86,  88;  de- 
fined. 42;  illustrated,  46;  general  rule 
for,  21. 

Ledger,  auxiliary,  187;  card,  187;  closing 
the,  procedure,  86-88,  136;  customers', 
187;  defined,  42  ;  illustrated,  47;  loose- 
leaf,  187;    trade  creditors',  188. 

Liability,  current  liabilities,  108;  defined, 
18;  inventor)',  disposition  of,  90;  com- 
pared with  cajMtal,  11. 

Loss,  cause  of,  16,  29;  compared  with  ex- 
pense, 9;    defined,  18. 

Merchandise  account,  91. 

Merchandise  discount,  origin  of  practice, 
158;  rules  to  journalize,  63;  treat- 
ment of,  in  accounts,  158-160.  (See 
Sales  discount  and  Purchase  discount.) 

Merchandise  stock,  closing  of  account, 
29-30,  89;  construction  of  account, 
22-27;    valuation  of,  160. 

Mortgage  payable,  70;  interest  accrued  on, 
157- 

Negotiable  paper,  107. 

Notes,  accommodation,  121  ;  demand,  when 
due,  122;  discounting,  115;  forms  of, 
112,  116,  118;  interest-bearing,  113; 
noninterest-bearing,  1 1 1  ;  note  book, 
193;  jiarties  to,  no.  (See  Notes 
receivable.  Notes  payable,  and  Credit 
instruments.) 

Notes  payable,  account,  content  of,  n9; 
defined,  n9;  interest  accrued  on, 
179;    rule  to  journalize,  n9. 

Notes  receivable,  account,  content  of,  106; 
defined,  108;  discounted,  nq;  life 
of,  1 10. 

Office  furniture,  account,  content  of,  2}  ; 
closing  of.  29. 

Order,  express  money,  125;  postal  money, 
125;     shipping,    198. 

Orders,  handling  customers',  198;  order- 
ing goods,  197. 

Original  entry,  book  of,  41  ;  content  and 
form  of,  41  ;  correction  of,  41  ;  erasures 
of,  41  ;    importance  of,  41. 


INDEX 


Ownership,  statements,  ii,  12.  1?.  14,  !^. 
16. 

I'arcel  p<»st  insurance,  216. 

I'arintTship,  i)|H-ninn  intrii-s  of,   132. 

adnutting   |iartiur.    14S.  21^  220;  dis- 
solution, 219. 

Pass  book  (see  Hank). 

I'ersonal  accounts.  c1om:>;;,  j7,  customers, 
34-35;  expedients  to  avoid  opening, 
203 ;  functit)n  of,  should  be  shown, 
71  ;    trade  creditors,  35. 

I'etty  cash,  b(M>k.  l<;l,  192;  handlinR,  192; 
imprest  fund,  192;  relation  to  main 
cash  book,  181,  183,  192. 

Posting,  defined,  42;  post-marks,  use  of,  51, 
203;   formal  steps  in,  51. 

Post-marks,  cross-reference,  203;  impur- 
tance  of,  51. 

I' iwt  r  of  atfornev,  205. 

ri"tit,  and  capital,  9;  defined,  iS;  source 
of,  29-30;  two  methods  of  finditiL, 
38-39. 

I'rotit  and  loss  account  (sec  Account). 

Proprietor,  account,  closed,  32. 

Protest,  protested  notes  and  drafts,  how- 
treated,  106,  183. 

I'urchase  accoant,  closing,  86;  content  of,  91. 

i'urchasc  book,  closing,  66;  form  of,  166, 
207;    posting,  62,  73,  74. 

Purchase  discount,  160. 

Record,  content  and  form  of  the,  41  ;  scope 
of  the,  10;   why  kept,  9,  10,  17. 

Rent,  as  a  thing  owned,  13  ;   defined,  13. 

Reserves,  for  had  debts,  172;  for  depre- 
ciation, 173;  purpose  of,  172;  treat- 
ment of  reserve  account,  172. 


Sales,  account,  closing,  30,  86;  account, 
construction  of,  24-30;  account,  func- 
tion of,  30;   undelivered,  166. 

Sales  b<M)k,  closing,  58 ;  form  of,  58 ;  post- 
ing, 60;    purjxise  of,  58. 

Sales  discount,  158;  computini;  in  partial 
payments,  65. 

Service,  of  wealth,  16;    pecuniary,  14. 

Sight  paper  (see  Drafts  and  Checks). 

Single  entry,  changing  to  double  entr>\ 
150-152;  compared  with  double  entr\  . 
151;  finding  profit  when  books  are 
kept  by,  150;  how  to  keep  b(X)ks  by, 
149;    journal,  form  of,  150. 

Statement,  account  form,  84;  business 
and  financial,  purpose  of,  34;  forms 
of.  84,  174;  exercises  in  preparing,  176, 
220;  report  form,  174;  six-column  form, 
176. 

Terms,  "dating"  invoices,  198;  meaning 
"^  59;   posting  of  in  personal  accounts, 

51- 

Trading  accounts,  7I  ,     "merchandise"  ac- 
count, 91. 
Transaction,  as  a  transfer  of  value,  12,  26; 
classified,  21;    effect  of,   1 1 -1 7. 

Trial  balance,  errors  in.  55;  f«)rm  of,  56; 
of  cijncrete  results,  56;  procedure  in 
taking,  54,  56;    purpose  of,  54. 

Value,  accounts  as  depositories  of,  26,  82; 
defined,   18;    transactions  transfer,   12. 
\'oucher  checks  (see  Checks). 

Wealth,  services  of,    16;    perishable  nature 

of,  17. 
Weight  note,  138. 


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